Lululemon pulled off an epic comeback
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Morgan Stanley just upgraded the athletic retailer's stock to "overweight," meaning it recommends that investors buy shares.
Getting an endorsement from Morgan Stanley shows Lululemon has overcome the numerous issues it has faced in recent years, such as product recalls (most notably the sheer pants debacle), and mounting competition from Nike and Under Armour.
Despite these challenges, Lululemon's "unique brand positioning and fashionable product offering have allowed it to dominate the North American athletic yoga apparel category," the analysts write.
Shares rose 3% on the news.
Here are a few factors driving growth at Lululemon.
1. International expansion
Lululemon has become nearly ubiquitous in America.
But the retailer has just started to tap into markets like Asia and the Middle East.
International expansion provides Lululemon with an opportunity to drive profits higher.
2. Men's business
Lululemon's men's business is booming, with sales up 31% in the most recent quarter.
High sales numbers are driven by the ABC pants, or "anti-ball-crushing" pants, which boast a four-star rating and are supposed to allow "breathing room" for men.
3. Bigger stores
Lululemon has been testing larger store formats, according to Morgan Stanley. This allows room for additional categories like menswear.
It also lets Lululemon pack stores with merchandise, leading to higher sales figures.
4. Teen stores
Lululemon is expanding a sister brand called Ivivva for tween customers. The brand has 50 Ivivva stores and showrooms around the world.
Teens are increasingly buying gear from Nike and Lululemon over denim classics from brands like Abercrombie, according to a recent Piper Jaffray survey on teen spending.
