Our action is partly based on valuation, with relatively modest upside to our new 12-month target price of $450, up $70 on P/E of about 51x our FY 23 (Jan.) estimate and the five-year average forward P/E of about 38x. We raise FY 22 and FY 23 EPS estimates by $0.47 and $0.80 to $7.48 and $8.90. We think LULU's relative valuation is partly warranted by its premium brand image, strong balance sheet, top-tier margin, and agile pivot to Tech with Mirror, which provides underappreciated product integration opportunities amid the at-home fitness boom and favorable secular trends. After its significantly better-than-expected Jul-Q results that reflected broad-based strength across its distribution channels, geographic regions, and product categories, LULU seems comfortably on track with its key strategic priorities and raised its full-year financial targets, with continued strong growth in online sales (likely continuing into next year) combined with further margin expansion (despite higher airfreight costs).
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