Lululemon Shares Downgraded, Here's What's Changed

Lululemon Athletica inc. LULU has been downgraded from a Buy rating to a Hold by analysts at Stifel citing sector challenges and execution risk.

“We remain constructive on the Company’s potential to leverage brand authenticity for global growth but also remain mindful o execution risks and external factors that could challenge fundamental progress,” said Stifel analyst Jim Duffy.

Despite the downgrade, Stifel raised its price target from $60 to $66.

The downgrade does not come from a loss of relevance in the market, but is due to the struggling athletic apparel sector, whihc is seeing consolidation and a fundamental shift to direct to consumer initiatives.

Lululemon does stand to see some benefit from the recent strength in the Canadian dollar which is expected to prop up revenue and earnings in quarters two thru four.

Key Risks For Lululemon

1. Pervasive softness in North American retail foot traffic will challenge brick-and-mortar same-store sales.
2. Limited evidence of proof of concept in international markets and the growing importance of international growth to future earnings and the multiple.

“Contemplative of near-term upside potential, longer term opportunities, and risks, we are challenged to justify sufficient risk adjusted valuation to support a buy rating,” said Duffy.

Shares of Lululemon were down 1.39 percent on Tuesday.