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Jefferies cuts Lululemon stock price target amid competition concerns

EditorIsmeta Mujdragic
Published 07/10/2024, 10:00 AM
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LULU
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On Wednesday, Jefferies adjusted its outlook on Lululemon Athletica Inc. (NASDAQ:LULU), reducing the price target to $220 from the previous $240 while maintaining an Underperform rating on the stock. The move comes as analysts draw parallels between Lululemon's current market position and historical brand dynamics witnessed in the fashion industry.

The firm's analyst cited a case study comparison involving Coach, a once dominant brand that faced a shift in its valuation following the rapid market expansion of competitor Michael Kors. This historical context is used to illustrate potential market dynamics that could affect Lululemon, suggesting that similar valuation re-ratings could occur for the athletic apparel company as it contends with emerging brands gaining momentum and market share.

The analyst's comments reflect a broader consideration of market trends and competitive forces. "We believe a similar story could be ahead for LULU as early-stage growth companies continue to drive brand momentum and retail expansion," the Jefferies analyst remarked, highlighting the potential impact of new entrants in the athletic apparel space on established players like Lululemon.

Investors and market watchers will likely monitor Lululemon's performance closely in light of this updated guidance, as the company navigates a retail landscape that continues to evolve with new brands and changing consumer preferences.

In other recent news, Lululemon Athletica Inc. reported first-quarter earnings per share (EPS) of $2.54, driven by a 40% rise in international sales and a 2% increase in U.S. sales.

The company also expanded its share repurchase program by an additional $1 billion. Baird has adjusted its outlook on Lululemon, lowering the price target to $470 from the previous $505, while maintaining an Outperform rating. The firm acknowledged mixed U.S. customer traffic and spending indicators but remains optimistic about the second half of the year.

Deutsche Bank resumed coverage on Lululemon, setting a Hold rating and a price target of $357, citing increasing competition and a trend towards more formal attire. Other analyst firms have also adjusted their stance on Lululemon. KeyBanc revised its price target for Lululemon, reducing it to $415 from $515, while BofA Securities raised its price target to $440.

In other company news, Lululemon shareholders approved executive pay and elected directors at its 2024 Annual Meeting, and ratified the appointment of PricewaterhouseCoopers LLP as Lululemon's independent registered public accounting firm for the fiscal year ending February 2, 2025.

However, a shareholder proposal requesting a report on the impact of the production and sale of animal-derived products did not garner enough support and was not approved.

These are among the recent developments for Lululemon Athletica Inc.

InvestingPro Insights

As Lululemon Athletica Inc. (NASDAQ:LULU) faces a changing retail landscape and heightened competition, insightful metrics and analyst perceptions can help investors gauge the company's financial health and market position. According to InvestingPro data, Lululemon holds a market capitalization of $35.92 billion, with a Price to Earnings (P/E) ratio of 23.25, which adjusts to 22.14 when considering the last twelve months as of Q1 2025. This may suggest a valuation that is more favorable in terms of near-term earnings potential, especially when paired with a PEG ratio of just 0.34 during the same period, indicating possible undervaluation relative to earnings growth.

Amidst the competitive pressures, it's notable that Lululemon's gross profit margin remains robust at 58.34%, underscoring the company's ability to maintain profitability in a challenging environment. Additionally, the firm's liquid assets exceed its short-term obligations, which points to a strong liquidity position that could support operational flexibility and strategic initiatives.

InvestingPro Tips highlight several aspects of Lululemon's financial standing. First, the company is trading at a high Price to Book (P/B) multiple of 8.57, which may reflect investor confidence in the company's assets and brand value. Second, despite a significant hit to the stock price over the last six months, with a 40.12% decline, analysts predict the company will remain profitable this year, which could offer a silver lining to investors considering long-term potential.

For those looking to delve deeper into Lululemon's financials and market prospects, there are an additional 24 InvestingPro Tips available, offering a comprehensive analysis of the company's performance and outlook. Utilize the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and gain access to these valuable insights that can inform investment decisions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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