BofA Securities analyst Lorraine Hutchinson reiterated a Buy rating at Lululemon Athletica Inc. (NASDAQ: LULU) with a price target of $355.
The analyst says that the data shows that LULU's sales in China have picked up momentum in the third quarter to date, following a slowdown in the second quarter.
Notably, Meritco's data shows that Lululemon's China sales increased by 48% in August and 67% in September, with a 98.4% correlation to reported sales. This marks a significant rebound from the second quarter.
Although monthly sales can be volatile, the analyst maintained the estimate of 60% growth for the quarter, adding 300 basis points to total sales growth compared to the second quarter.
The analyst writes that they have long regarded China as a significant growth opportunity, and this positive trend reinforces their confidence in LULU's diverse growth avenues.
While still a small portion of total revenues, China plays a crucial role in Lululemon's growth. Sales increased by 33% (+40% ccy) in FY22, 67% (+75% ccy) in FY23, and 39% year-to-date, with China accounting for 13% of total revenues, adds the analyst.
The analyst writes that Lululemon's long-term plan aims for a fourfold increase in international revenue by 2026, with China as a key component of this growth trajectory.
Investors can gain exposure to the stock via Pacer US Cash Cows Growth ETF (NASDAQ: BUL) and Invesco S&P 500 Equal Weight Consumer Discretionary ETF (NYSE: RSPD).
Price Action: LULU shares are down 0.68% at $319.00 at the last check Monday.