Lululemon Athletica risk/reward favorable into Q1 EPS – Citi

Citi expects Lululemon Athletica (NASDAQ:) to beat first-quarter earnings estimates and raise full-year guidance when it reports after the close on June 1.

Analysts, who have a Buy rating and $440 price target on the stock, told investors in a note Friday that the risk/reward for LULU is favorable.

“We are above cons in 1Q at $2.07 (vs cons $1.96) based on higher sales (driven by strong China growth) and stronger GM (driven by better flow through of freight),” the analysts wrote.

“While the retail environment in the US was generally choppy in 1Q, and many retailers with significant exposure to the lower income consumer have missed 1Q and guided 2Q/F23 lower, retailers with more significant exposure to the higher income consumer (Anthro, FP, A&F, DKS) have performed well in 1Q and have not seen a slowdown 2Q QTD. We believe LULU falls into the latter bucket.”

In addition, analysts stated that they expect management to raise F23 guidance by the 1Q beat and guide 2Q in-line with consensus.

Analysts noted that with LULU shares down 11% since early May, driven by fears of a consumer slowdown in discretionary and choppiness in the athletic market, they believe risk/reward is favorable into 1Q EPS.