Telsey Advisory Group analyst Dana Telsey reiterated an Outperform rating on Lululemon Athletica Inc. (NASDAQ:LULU), with the unchanged price target of $450.

Despite significant growth over the past two years, Lululemon continues to see strength in its accessories business, notably bags. Accessories rose 67% and 44% YoY in 1Q23 and 2Q23, respectively, following meaningful growth in 2021 and 2022.

The viral Everywhere Belt Bag ($38) is much of the strength as it drew young customers, notes the analyst.

Management noted that its entire bag assortment performed well in this most recent quarter, the analyst adds. 

Specific to the Everywhere Belt Bag, it posted "strong double-digit" growth in Q2, on top of strength last year, as LULU expanded sizes, colorways, prints, and patterns. 

Looking forward, LULU plans to continue to evolve its bag business in the coming months.

Over the past several years, TikTok influencers have posted videos

with 'Lululemon Everywhere Belt Bag' garnering 198.6 million views, the analyst adds. 

At almost the lowest price across Lululemon's assortment, these bags are "a nice entry point" to the brand, and the company can then convert bag customers into apparel customers.

As other brands are entering the market, the analyst believes the strength of the Lululemon brand and its first-mover advantage can position its bags well as long as consumers continue with the cross-body trend. 

However, the company may face stiff competition from American Eagle Outfitters, Inc. (NYSE:AEO), Free People, Nordstrom, Inc. (NYSE:JWN), and Urban Outfitters, Inc. (NASDAQ:URBN) in the cross-body bags category.

Price Action: LULU shares are trading lower by 0.46% to $390.08 on the last check Thursday.