Lululemon: Fears Put to Rest as Holiday Sales Exceed Expectations; Shares Overvalued

Lululemon raised its fourth-quarter guidance after strong holiday sales. We attribute this performance to the popularity of the company’s brand, the source of our narrow moat rating, and a steady stream of new apparel releases. In addition, Lululemon has stepped up its marketing, including the sponsorship of more professional athletes. With solid recent results and more innovation expected in 2025, investors’ pessimism about its slowing sales in North America and competition has dissipated; shares are up about 75% over the past five months. We are lifting our fair value estimate to $315 from $310 but rate shares as overvalued.