Lululemon Athletica Inc. (NASDAQ: LULU) is in the driver’s seat as its fiscal first-quarter earnings approach. The company has undergone a few cosmetic changes that should benefit it going forward. The new systems and processes will enable the company to improve execution across the board, and the new chief financial officer (CFO) has a strong grasp of the industry fundamentals. As a result, Sterne Agee made a call on the overall direction of Lululemon.

The firm upgraded Lululemon to Buy from Neutral with a price target of $77, which implies upside of 11.4%.

According Sterne Agee, the supply chain improvements are being set to overcome the fact that Lululemon’s revenue growth will exceeded its infrastructure growth. The planning processes are being formalized with strict calendar guidelines in order to avoid the need for expediting raw materials and then finished goods in order to get those goods to market in a timely manner.

Lululemon expects that this new merchandise planning system will allow its merchants and planners to better manage the increased penetration of seasonal product while continuing to drive higher margins. While the firm does not expect the gross margin to return to mid-50% levels in the near future, the new systems should begin to propel margins higher by the end of this year.

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One of the major factors that has separated Lululemon from its competition in the past has been the in-store service. New tools, such as traffic counters and more formalized training, are allowing for better store staffing and improved customer engagement. According to Sterne Agee, Lululemon should remain positioned above its numerous competitors such as Nike, Under Armour, Athleta and others. Also, the overall active wear selection is expanding so there can — and likely will be — numerous winners in the space.

Sterne Agee analyst Sam Poser commented on the new CFO in the report:

After a short meeting, we were impressed with Stuart Haselden. His background at a better vertical retailer such as J. Crew gives him the necessary perspective to be additive to Lululemon. He has only been in the CFO seat for 9 weeks, but he has a strong grasp of what does and does not make Lululemon tick. He clearly was impressed by the commitment of most everyone at Lululemon to drive innovation and the Lululemon brand, but at the same time appeared surprised that the infrastructure was so lacking. We are confident that Mr. Haselden will bring much more to the table as he acclimates at Lululemon.

Sterne Agee raised its fiscal 2015 and 2016 earnings per share (EPS) estimates to $1.98 and $2.37 from $1.89 and $2.19, respectively. The firm also increased its second half of 2015 same-store sales expectations to reflect the easing of the port issues and response to the new offerings. Given the improvements, Sterne Agee believes that EPS guidance for the 2015 fiscal year of $1.85 to $1.90 will prove conservative.

Shares of Lululemon were up 4% at $69.15 Wednesday morning, in a 52-week trading range of $36.26 to $69.94. The stock has a consensus analyst price target of $65.75.

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