Goldman Sachs: Lululemon To Miss Guidance

Goldman Sachs’ Lindsay Drucker Mann believes Lululemon Athletica inc. (NASDAQ: LULU) is likely to witness “fading comp sales as competitive pressures weigh on traffic while the pricing tailwinds that benefited 3Q15–2Q16 fade.”

Drucker Mann reiterated a Sell rating on the company with a price target of $46.

Evidence Of Challenges

The analyst mentioned that Lululemon Athletica had highlighted that it was re-launching its tops line, as a key initiative for the fall 2016 season.

“We believe this effort has been bumpier than planned, exacerbating existing business challenges which include deteriorating store traffic and a heavy inventory load relative to peers,” Drucker Mann stated.

In fact, the analyst pointed out several signs of challenges for the company, including the outLET’s PARTY event, which was an outlet event with higher markdowns that took place from September 23 to 25 and was the first of its kind.

Another sign of challenging times was the select invitation only “customer appreciation events” held in some of Lululemon Athletica stores, during which discounts of 15–25 percent were offered across the entire store, with the discount rate varying from store to store.

More Concerns

Drucker Mann also believes there is evidence of weak sell-through on the new tops styles, saying that 22 styles of hoodies and outerwear were introduced on the U.S. website in late July-early August, of which eight were already marked down by 25 percent on average.

The analyst also expressed concern regarding a large increase in products listed in the “We made too much” sale section online on October 13. “LULU also advertised the marked-down product through emails to select customers,” Drucker Mann said.

Drucker Mann now expects the Q3 comps sales to come in below the guidance of mid-single digits.

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