Lululemon avoids the ‘athletic carnage’ in retail

Key Points
  • Analysts says they were impressed with Lululemon's better-than-expected second-quarter profit report.
  • New products and a growing line of men's clothing are helping the yoga and running gear retailer break ahead of the pack, analysts say.
Lululemon CEO: More and more people want to live an athletic lifestyle

Athletic retailers and apparel makers are having a rough time, but somehow Lululemon is outperforming.

The yoga and running gear retailer posted better-than-expected second-quarter profit Thursday. Its shares rose 7 percent shortly after the market open on Friday in the wake of the report. Comparable sales for Lululemon rose 7 percent versus the 4 percent analysts had expected for the quarter, according to Thomson Reuters data.

Simeon Siegel, an analyst at Nomura Instinet, said trends improved in stores as well as in online sales. "LULU is quite different from the rest of the athletic space," he wrote in a note to investors Friday, "which helps explain how it can sidestep the clear Athletic carnage plaguing the channel."

Though Lululmeon shares were down 7 percent in the last month, that is better than the 12 percent drop for Nike and Under Armour shares. Retailers are having a tough time competing with e-commerce giant Amazon. The SPDR S&P Retail ETF fell more than 4 percent in the last month.

Lululemon CEO Laurent Potdevin explained to CNBC on Friday how the retailer was surviving against the rising threat of e-commerce.

"Nobody is going to beat Amazon at Amazon. We're in a very different playground that is differentiated by innovation, by premium product, by solving problems for the athletes. We're actually not in the world of commodity at all," Potdevin said on CNBC's "Squawk on the Street."

Siegel reiterated his buy rating on Lululemon and raised his price target to $67 from $65. The new target is 16 percent higher than Thursday's closing price.

Other Wall Street analysts noted Lululemon's success with new clothing styles and lines, with new fabrics such as engineered mesh and a growing line of apparel for men.

Jefferies analyst Randal Konik wrote in a note to clients on Friday that the men's clothing line is on its way to becoming a $1 billion business. "After some merchandising missteps early in the year, LULU appears to be back on track, with the renewed focus on product innovation allowing the brand to step away from the pack, despite a highly competitive athletic backdrop."