Is Lululemon Just A Hold? Stifel Says Yes

In a report published Tuesday, Stifel analyst Jim Duffy commented that the focus of Lululemon Athletica inc.'s (NASDAQ: LULU) upcoming fourth quarter print on March 26 will focus on its outlook.

Duffy said that Lululemon pre-released its fourth quarter results on January 12 and he will now focus on any first quarter guidance the company offers in its report. The analyst added that the quarter-to-date trends need to showcase an implied retail-only constant currency comp guidance that holds at least in-line with fourth quarter of positive in the low single digits.

Duffy also noted that fiscal 2015 comp guidance needs to show sequential improvement as comp performance should trend with improving product mix, merchandising strategies and a refresh to the company's website.

The analyst added that fiscal 2015 will also be an investment year and that more than 50 percent of its SG&A expenses is denominated in Canadian dollars that has seen weakness versus the U.S. dollar. As such, Duffy expects deleverage from incremental spend will be "muted."

Duffy is looking for Lululemon to guide its 2015 earnings per share around $2.00 to $2.10, with earnings growth weighted to the second half of the year. For the first quarter, the analyst is expecting the company to guide revenue of $443 million, comps of +7.2 percent year-over-year on a constant-currency (+2 percent constant currency retail-only comp) and earnings per share of $0.37.

"We continue to like the long-term brand story, but valuations today (25.8X FY16) already incorporate, in our opinion, sightlines to a high single digit comp, return to mid-20 percent operating margin, full store growth in the U.S. and >50 international stores, without accounting for risk from execution missteps," Duffy argued.

Shares remain Hold rated.