I'm usually a pretty humble guy. But in this case, I can't help myself as I come out with a big fat "I told you so."
One of the analysts in particular, KeyBanc's Edward Yruma, had highlighted the inventory concerns along with slowing comparable stores sales and reiterated his "Underweight" rating on the stock. I brushed off the inventory concerns as actually the right thing to do, given the inventory shortages that lululemon has been facing all year. Adding more inventory in time for holiday shopping to help lulu followers get their fixes sounded like a great idea to this Fool.
Well, we lululemon shareholders got some vindication yesterday. Yruma has entirely reversed his stance on the stock and has now upgraded it all the way to a "Buy" and assigned it a price target of $58. He met with CEO Christine Day and CFO John Currie and now sees the inventory jump as a positive sign, just as I do.
Yruma added that the company "has been chronically underinventoried" and that "better in-stock levels could drive an incremental $0.13 in EPS over the next 12 months." He points out that more inventory can drive operating profit at outlets while lululemon continues to expand its men's offerings. He also makes comparisons with Coach
Two other analysts also followed up the results with "Buy: upgrades: Janney Montgomery Scott and Barclays with price targets of $57 and $58, respectively.
Now really is a good chance to pick up shares given the recent weakness. I think it's a better pick than rival Under Armour