Growth algorithm supports higher sales and margins
Needham notes LULU is their top pick for 2018 based on strong momentum and firm's expectation for higher sales and margins during the next year and beyond. While its brand is well-proven in the N. America women's markets, firm believes it has a long runway for growth in under-penetrated areas, including int'l and men's. Strong product acceptance and double-digit square footage growth will provide an avenue for growth in these segments. With respect to margins, firm believes LULU should be able to drive GM expansion and SG&A leverage in 4Q and throughout 2018, enabling its already high margins to improve further. LULU's highly profitable e-commerce segment is posting out-sized growth and they think it is well positioned for the sector's structural shifts to digital channels. All in, they foresee double-digit EPS growth during the next few years; Buy, $79 tgt.