Goldman Sachs analyst Brooke Roach downgraded Lululemon Athletica Inc. LULU to Neutral from Buy, lowering the price forecast from $463 to $286.
Following recent execution challenges, lackluster innovation launches, and rising evidence of more regular promotionality, the analyst sees more balanced risk-reward for the stock.
The analyst flags that Lululemon’s store traffic has declined in each month of 2024, which marks a material slowdown compared to the 2023 trend. Traffic versus the key peers has also been fairly weak.
On digital, while app downloads have remained healthy, the company’s online traffic has underperformed peers.
Previously, despite some weakness in the quarterly checks earlier this month, the analyst highlighted that trends were stable enough to maintain a constructive view of the stock.
However, due to weaker execution and innovation, Roach now cautions of fading confidence in the brand’s near-term growth prospects in the U.S. market.
Per the analyst, there are limited signs of material innovation through the summer.
The company’s launch and quick removal of the new Breezethrough franchise were disappointing, suggesting that near-term execution is more choppy than initially anticipated.
The analyst writes that Lululemon has also become sequentially more promotional, driving the risk that the brand is training its customers to expect more regular discounts.
The analyst adds that other signs of execution missteps are also evident in the store checks, and Roach has seen more cautious brand indicators within proprietary HundredX survey data.
Overall, the analyst doesn’t see an inflection in sales growth in the second half of the year, as the brand is likely more susceptible to competitive pressures and macro factors.
Price Action: LULU shares are trading lower by 5.27% to $235.92 at last check Friday.
Photo via Shutterstock
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