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Analysts Respond To Lululemon's Q4 Beat, Weak Outlook

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Analysts Respond To Lululemon's Q4 Beat, Weak Outlook

Shares of Lululemon Athletica inc. (NASDAQ: LULU) were trading lower by more than 20 percent early Thursday morning in reaction to the company's fourth-quarter earnings report, which came in better than expected. However, the company's first-quarter revenue guidance of $510 million to $515 million was notably short of the $552.3 million analysts were expecting.

Deutsche Bank: Difficult Retail Environment

Paul Trussell of Deutsche Bank maintains a Hold rating on Lululemon's stock with a price target lowered to $58 from a previous $65.

According to Trussell, Lululemon's report shows how difficult the retail landscape has become. For instance, the company posted a "strong" 7-percent total comp in the fourth quarter but now expects comps to fall by a low-single-digit in the first quarter.

Trussell noted that while Lululemon's management cited a lack of color in its product lineups, store traffic has slowed. This indicates that the company is certainly not immune from the overall poor trend in the retail environment.

Finally, the analyst suggested that it isn't time to throw in the towel and conclude that Lululemon's brand isn't resonating with consumers anymore. Management did a good job in detailing its game plan to drive traffic so "time will tell" if current trends are an anomaly.

MKM Partners: Buy The Dip

Roxanne Meyer of MKM Partners maintains a Buy rating on Lululemon's stock with a price target lowered to $75 from a previous $90.

Meyer was quick to point out that Lululemon's guidance will weigh on the stock in the near term and could limit upside through the second quarter when comps are expected to improve. As such, now might be a good time for investors to buy the stock for three reasons:

    1. The first quarter outlook is "self-inflicted" and should be temporary.
    2. Lululemon's long-term story remains unchanged and still has multiple catalysts (including new product launches) to drive comp upside this year.
    3. Lululemon could post a mid-single-digit comp growth and 20 percent-plus EBIT margins over the longer term.

Jefferies: Outlook In Focus

Randal Konik of Jefferies maintained a Hold rating on Lululemon's stock with a price target lowered to $54 from a previous $64.

According to Konik, Lululemon's fourth-quarter report was "solid" but all that matters looking forward is the guidance. As such, the company's profile moving forward will be a "classic case" of slowing momentum and negative earnings per share revisions.

Konik noted that while he remains "very constructive" on the athletic space, Lululemon isn't the stock investors should own. The analyst pointed out that Lululemon's valuation is higher than Under Armour Inc (NYSE: UAA)'s, and Under Armour may be the better investment given its 30 percent exposure to the women's market and room to grow.

Konik also argued that Lululemon's longer-term prospects in mens, kids, international and e-commerce are all factored into the stock's valuation today and investors are advised to "remain on the sidelines until more robust top-line and attractive valuation materializes."

Credit Suisse: Less Clear Visibility

Christian Buss of Credit Suisse maintains a Neutral rating on Lululemon's stock with a price target lowered to $56 from a previous $64.

According to Buss, Lululemon's management has done a good job in recapturing lost productivity and improving gross margins. However, it is now clear that it is difficult for the company to show incremental operational improvements.

Looking forward to the full year fiscal 2017, Buss was expecting Lululemon to show a store comps of 2 percent to 3 percent but the company's guidance signals a more likely range of flat to 1 percent.

In fact, Buss noted that Lululemon's first-quarter guidance implies its first quarter of negative comps dating back all the way to the fiscal quarter of 2009. The analyst added that the negative comps will continue through the first half of 2017 and could turn positive in the third quarter.

Elsewhere On The Street

  • Analysts at Nomura maintain a Buy rating with a price target lowered to $65 from a previous $72.
  • Analysts at Wedbush maintain an Outperform rating on Lululemon's stock with a price target lowered to $64 from a previous $81.
  • Analysts at DA Davidson maintain a Neutral rating with a price target lowered to $58 from a previous $75.

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