The Ratings Game: Lululemon keeps Amazon at bay and reaps the financial rewards

Lululemon’s yoga gear has shown resiliency despite challenges facing the broader athletic category

Lululemon Athletica Inc. has managed to both buck the downward trend in retail’s athletic sector and keep Amazon.com Inc. at arm’s length, analysts say, driving better-than-expected third-quarter results.

Lululemon LULU, +7.31% shares have jumped nearly 8% in Thursday trading after the company reported earnings, revenue and same-store sales that beat expectations. Adjusted earnings per share were 56 cents, sales totaled $619 million and same-store sales rose 8%.

The FactSet consensus was for EPS of 52 cents, sales of $610 million and a same-store increase of 5.3%.

Cowen & Company analysts led by Oliver Chen ask what makes Lululemon “un-Amazon-able.”

“We think the brand’s experiential and immersive focus on the active mindful lifestyle, premium brand equity which combines fashion and function, vertical integration, highly engaged store and brand ambassadors, and category leadership cannot be easily replicated in a pure-play online environment,” analysts responded.

Cowen also credits innovation in areas like fit and “sweat responsiveness,” which require personalized interaction with customers and help drive loyalty.

Cowen rates Lululemon shares outperform and raised its price target to $78 from $68.

Lululemon’s price target was raised more than a half dozen times since the late Wednesday earnings announcement.

The athletic retail space has been challenged by a promotional environment, bankruptcies and changing tastes, with companies like Foot Locker Inc. FL, +0.40%  , Finish Line FINL, -0.28%  , and even powerhouse Nike Inc. NKE, +1.19%   teetering.

Nike has partnered with Foot Locker and Amazon AMZN, +0.75%   to provide customers with an enhanced experience and exclusive merchandise in order to continue on a growth path.

See: Foot Locker partners with Nike for Sneakeasy pop-up store

Also: Retail stocks rally on expectation sector will be key beneficiary of tax reform

Canaccord Genuity analysts upgraded Lululemon shares to hold from sell following the results after first issuing a warning that a surge in denim could hurt the yoga clothing company.

“While the denim trend continues to gain momentum across apparel retail, Lululemon’s Q3 results, and specifically the 24% comp in women’s pants, demonstrate the company’s ability to innovate through industry headwinds, something we underestimated and for which we give the company a great deal of credit,” analysts led by Camilo Lyon wrote.

Canaccord raised its price target to $70 from $43.

SunTrust Robinson Humphrey analysts also highlighted the comp in women’s pants, noting the “successful” launch of the Everlux line, a new fabric, after the launch of the Enlite bra in the second quarter.

Read: Amazon’s apparel business could grow to as much as $85 billion in sales by 2020

“As a reminder, historically assortments have been more centered around women’s bottoms, but with the improvements on the men’s side… and success in bras, the company’s core competencies are expanding,” said analysts led by Pamela Quintiliano. “This is also evidenced by jackets and outerwear, which comped an impressive 26%.”

SunTrust rates Lululemon shares buy and raised its price target to $80 from $69.

Wells Fargo remained somewhat cautious despite the results and its own price target raise.

“We remain sidelined due to lingering macro concerns and valuation, and to be fair, Lululemon has made this call before – viewing the ability to scale SG&A [selling, general and administrative expenses] as on the horizon, only to walk that view back when the rubber eventually met the road (has actually happened multiple times over the past two years,” analysts led by Ike Boruchow wrote in a note.

Wells Fargo rates Lululemon shares market perform with a $70 price target, up from $60 previously.

Lululemon shares are up 22% for the past year while the S&P 500 index SPX, +0.36%  is up 17.5% for the period.

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