June 10, 2023

Lululemon Athletica Inc. inventory was downgraded to promote by Jefferies on Monday with analysts anticipating the yoga-gear maker to dial again aggressive long-term steering within the coming quarters.

Analysts led by Randal J. Konik mentioned they anticipate the corporate’s second-quarter earnings due for launch on Thursday shall be robust and that the corporate will reaffirm its third-quarter steering, “however that’s not our concern.

“Our downgrade thesis relies on a view that long-term projections are aggressive throughout whole revenues, EBIT margins, males’s, and worldwide. We imagine in coming quarters, LULU should stroll again its long-term projections as competitors rises, finish markets weaken, and promos enhance industry-wide,” they wrote in a be aware to purchasers.

possible benefited from one fad within the second quarter too.

“Checks counsel enterprise was on strong footing within the second quarter and the present “Belt Bag” craze was an additional advantage,” mentioned the be aware. “We imagine site visitors possible stayed constructive (10% disclosed at April analyst day) and ticket development additionally helped. Our second-quarter estimates are roughly in step with consensus.”

See: Lululemon ‘not immune’ to inflation, supply-chain disruptions, however gross sales shine

The corporate additionally has momentum within the back-to-school season and its full-year outlook doesn’t embrace share repurchases, mentioned the be aware.

Nevertheless, Lululemon isn’t resistant to the stock overhang that’s hurting clothes retailers throughout the board at current and resulting in main discounting. On the identical time, “inflation isn’t going away,” and the robust greenback isn’t serving to.

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“We’re seeing extra proof of slowing spend throughout attire and normal merchandise. Extra importantly, we’re witnessing slowing spending traits throughout low- and high-income demos broadly,” the analysts wrote.

Lululemon’s five-year targets rely closely on worldwide market development with China accounting for a lot of its gross sales steering of a greater than $6 billion enhance to above $12 billion.

See additionally: Lululemon is launching a membership program, a part of a plan to achieve $12.5 billion in income in 5 years

“It’s clear macro points are extra extreme throughout Europe and in Asia than within the U.S. which may stress LULU’s means to satisfy lofty projections,” mentioned the be aware.

On the firm’s analyst day, it mentioned it anticipated margins to maintain rising from present ranges, however with the remainder of the sector feeling the ache, these targets not look overdone.

“Given the implied “Legal guidelines of Retail,” it could be past heroic for LULU
to extend, not to mention preserve, its sky-high margins,” mentioned the be aware.

Lululemon shares had been down 0.2% and have fallen 21% within the 12 months thus far, whereas the S&P 500
has fallen 15%.

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