UPDATE: Aggressive Threat from Athleta Hinders Lululemon, Janney Removes LULU from Best Ideas List
In a report published Monday, Janney Capital Markets analyst Adrienne Tennant downgraded Lululemon Athletica (NASDAQ: LULU) from Buy to Neutral and lowered the price target from $61.00 to $49.00. Tennant removed Lululemon from the Janney Best Ideas List.
Janney Capital noted that Lululemon is still recovering from PR and luon issues. In addition, the company has the potential for negative store-level comps and downward EPS revisions. The analyst expects shares of Lululemon to be volatile in the near-term. Janney reported that "the stock should “bottom” and find support."
Tennant emphasized the increasing threats to the lulu brand including The Gap's (NYSE: GPS) Athleta sector. The analyst wrote that Athleta has been an aggressive and successful threat. "Positioning their stores close to lululemon stores and mimicking the relationship with the yoga community and “healthy lifestyle” positioning, Athleta is rapidly growing its domestic footprint." Janney Capital remarked on Athleta's 40% larger stores and "broader end-use offering." The analyst forecasts that Gap will add approximately 40-50 Athleta stores per year over the next couple of years.
Janney remains confident in the Lululemon brand long-term due to numerous factors. Such factors include the benefits from the new CEO Laurent Potdevin, the expectation that supply-chain issues improve, and the clarity that the brand equity remains intact. The analyst also expects "positive changes" from the Chief Product Office Tara Poseley. Tennant commented that he is "hopeful the company resets the bar for achievable, and beatable, comp and earnings expectations."
Shares of Lululemon closed at $47.62 on Friday and has traded down as much as 2.34% at $46.53.
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