Dive Brief:
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Lululemon Athletica was one of the few companies to have a good day on Wall Street on Monday, as shares of the company gained 6.5% after Wells Fargo and Jefferies analysts upgraded its stock to outperform.
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The increase is Lululemon's best gain in more than a month and comes in the wake of a 6% drop overall in 2015, the third straight year that saw the company's stock fall in price.
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The company has faced supply chain snafus in recent years, but improvements to its supply chain should lower costs and head off the discounts that the retailer was forced into offering, according to Wells Fargo’s Ike Boruchow.
Dive Insight:
Monday was a day of recalibration on Wall Street, as investors took the wind out of the sails of some fast-rising stocks, like Amazon and Netflix, while breathing a bit easier about others.
Lululemon was one of the biggest gainers. The company is riding the wave of the athleisure trend, an increasingly competitive category that was the source of its early success, but has struggled with supply chain issues and several recall controversies.
Now, the company has made improvements that could help raise profit margins by 1.2% in 2016, according to Wells Fargo. Lululemon previously used air freight for about 40% of its merchandise, but has now drastically scaled back the practice and replaced it with ocean freighting, Bloomberg reports.
While Wells Fargo and Jefferies analysts see a clear path to recovery for Lululemon after three straight years of stock price drops, Andrew Burns, a senior research analyst at D.A. Davidson, maintained his neutral stance on the company.
“This company has had execution issues for a number of years,” he said. “That limits my confidence in saying they will emphatically deliver on the margin improvement.”
The appointment of its first-ever creative director in late 2015 could also help the retailer recapture some of the vision once offered by founder Chip Wilson, who battled with the board in the months before his full departure from the company about a year ago.
