Proactive Investors - Lululemon Athletica Inc (NASDAQ:LULU) shares traded higher after the athletic apparel retailer reported better-than-expected first quarter results, but analysts at Jefferies remain bearish on the stock.
They reiterated their ‘Underperform” rating with a base case price target of $240 and downside case price target of $150.
Shares of Lululemon added 6.3% at about $328 post-earnings.
“We advise investors to be sellers on any strength,” the analysts wrote.
“The Lululemon brand and its fundamentals have peaked in our view and we anticipate relentless competition ahead.”
They noted that consumer tastes are turning, with fashion shifting from skinny to wideleg styles which is reducing demand for skinny jeans and leggings.
“Additionally, Lululemon benefited from a belt bag trend, which boosted revenue growth by 500 basis points over the past two years. As this trend fades, it should create further headwinds for the company,” they wrote.
“There is a lot of hope placed on future products, but this doesn’t address the issue of rising competition,” they added.
On the company’s Q1 earnings, the analysts wrote that Lululemon beat muted expectations.
“What matters is US revenue continues to slow and share is being lost to Alo and Vuori. We believe margins won’t be maintained as US momentum fades,” they wrote.
“Our call remains simple: US business to go negative by the year-end and stay down in 2025, causing margins to decline and earnings per share to drop for the first time in Lululemon’s history.”
They added that Lululemon has become an almost $10 business compared to Nike’s $20 billion apparel business segment, including kids.
“If Nike (NYSE:NKE) is the dominant player in athletic apparel, it’s hard to envision Lululemon growing much larger from its current size, especially with increasing competition,” they wrote.