After lululemon stock (Lulu) has collapsed in the last five years, with its stock value rising more than 285%. One Wall Street analyst says it’s time to reset the high expectations of athleisure retailers.
The company’s shares fell about 2.5% in early trading.
“The biggest concern for LULU this year is the bullish forecast for sustained top-line growth of 20% or more,” Bernstein analyst Aneesha Sherman wrote in a note to clients Tuesday. “Now that the pent-up demand is gone, we are more cautious. [North America] Consumers, higher promotions, and new categories are too small to offset the softer core business.It’s time to check that reality.
Sherman downgraded Lululemon stock to Underperform and lowered its price target to $290.
Sherman attributed the increased anticipation to the success of Lululemon’s digital initiatives, the rise of athleisure during the pandemic, and the wave of office returns. 25% compound annual growth rate.
But signs of a reset have already begun, she added. Earlier this month, retailers warned that fourth-quarter margins are likely to shrink year-on-year. This comes about a month after the company’s third-quarter earnings fell short of Street’s expectations for gross margins and the stock fell more than 12% from his.
As a result, Bernstein expects Lululemon’s stock to see a 13% year-over-year revenue increase in 2023, which is in line with management’s projection of annual revenue reaching $12.5 billion in 2026. increase.
“Bulls believe this is an easily beaten lowball, but we don’t fully agree,” Sherman wrote. Should LULU be expected to grow at a doubling of sector growth when confronted with five years of exponential growth and increased competition from similar new athleisure brands closing in on LULU? Definitely not a target for lowball.”
After lululemon’s explosive sales of men’s apparel, it’s unlikely there will be a significant new catalyst, analysts added. It is Sherman said Miller was a “failure,” pointing to negative product margins, and that her footwear brand also didn’t have enough presence, “well below her 5% of sales.” she argued.
To seek further growth, Sherman said the company will have to risk its “premium brand image” and dive into wholesale for the first time.
“Executive teams facing insatiable growth slowdowns have the option to unleash a massive TAM. [total addressable market] Access through both wholesale partnerships [North America] And in China,” she wrote. “Will they? For now, the answer is no, but if that changes, it will be a major catalyst for LULU to be able to maintain a growth clip of 20% or more for the next few years.”
Josh is a reporter and producer at Yahoo Finance.
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