Investment bank Goldman Sachs has launched coverage of the retail sector and has marked Vancouver-based yoga wear brand Lululemon (ticker: LULU) as a top buy. And when Goldman speaks, investors take notes.
The firm forecasts strong growth for the company and has singled out the athleisure brand for membership on its Conviction List.
“Lululemon extended its leadership position during COVID-19 in the digital channel, and we believe the company is better positioned following the pandemic to be a market leader in a secularly growing active/casual marketplace,” analysts said.
Sachs analysts cite the retail sector reopening after a tough year as a propeller for the company’s growth.
“Past sector headwinds are currently acting as sequential tailwinds, with consumer traffic returning to stores, wholesale orders improving, and the industry realizing reduced promotionality,” the report said.
Lululemon announced last summer its $500 million acquisition of Mirror, the at-home fitness company that has an interactive workout platform, which analysts see as a way to boost customer engagement.
Although the firm is enthusiastic about Lulu’s prospects, it also cautions that the retail sector may not sustain such momentum in the long term.
“We anticipate these will normalize. We are also closely watching incremental headwinds from rising costs of freight, inflating and raw material input costs, and supply chain disruptions.”
While the leader in yoga attire is a promising investment, investors should note that the company already has a strong share price from the pandemic—shares have gained 8.3% so far in 2021.
Lululemon announced in June 2020 that it would acquire Mirror, an in-home fitness company that created an interactive workout platform, for $500 million. Analysts see the acquisition as a way for Lululemon to enhance customer engagement.
Moving forward, Lulu is also adding expanded sizing and heading to new markets, which will also broaden its customer base.