By Sam Boughedda
Lululemon Athletica Inc (NASDAQ:LULU) reports earnings after the market closes on Thursday, September 1, and a Jefferies analyst believes the results for its latest quarter "should be strong," but investors should sell LULU shares.
"The quarter should be strong (belt bags likely helped too) and we expect the company's F'23 outlook to be reiterated, but that's not our concern," wrote the analyst in a note to investors on Monday.
The analyst currently has an Underperform rating and a $200 price target on the stock, representing a potential 36% downside.
After noting the quarter should be strong, he added that "everyone already knows it."
"However, Times Are A Changing And Changing Fast... Inventories are bloated across retail (LULU included), promos are rising industry-wide, FX is not helping, and inflation isn't going away. We are seeing more evidence of slowing spend across apparel and general merchandise. More importantly, we are witnessing slowing spending trends across low- and high-income demos broadly," wrote the analyst.
"The 5-year sales outlook is likely to miss as end markets worsen, competition in men's rises and core product (leggings) growth slows. Margins are at risk if sales slow and promos deepen as well. Thus, we model Street low sales and earnings forecasts over the coming years, particularly in years 3-5 of the company's implied 5-year model," he concluded.