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Key Takeaways
- Lululemon shares have lost nearly half their value since the start of the year. Analysts say the athletic wear brand appears likely to cut its projections for the full year.
- Lululemon last month halted sales of a new line of leggings amid negative feedback from customers. JPMorgan analysts said that could affect second-half sales and the release of other new products.
- Raymond James analysts said Tuesday that “unfavorable” sales trends among other companies that also target high-income consumers could hurt Lululemon’s sales.
Shares of Lululemon Athletica (LULU) fell more than 4% Wednesday, sliding a day ahead of the company’s second-quarter earnings report, as a number of analysts lowered their price targets and said they expect the apparel maker to cut its internal projections for the year.
Analysts expect Lululemon to report a 9% bump in revenue to $2.41 billion compared with $2.21 billion a year ago when it posts earnings after the bell Thursday. Net income is projected to rise nearly 8% to $368.52 million from $341.6 million in the second quarter of 2023.
Analysts Expect Lowered Outlook as Sales, Discretionary Spending Slow
Last month, JPMorgan analysts lowered their price target for Lululemon stock to $338 from $457 citing concerns that a pause in sales of the company’s new “Breezethrough” leggings to address negative customer feedback could affect other planned product releases and sales over the second half of the year.
The price target shift and broader concerns about lower discretionary spending sent the stock to its lowest point since May 2020.
In the week leading up to Lululemon’s earnings on Thursday, several other analysts lowered their price targets, including Wedbush Securities, which cut to $324 from $400; Raymond James, which cut to $350 from $400; and UBS, which cut to $315 from $385.
Wedbush analysts said Wednesday that Lululemon’s potential lowering of its outlook in Thursday’s earnings report could prove to be a “clearing event,” allowing investors to refocus on the company’s “compelling growth opportunities” and strong financials once the year’s sales expectations are reset.
‘Unfavorable’ Sales Trends at Similar Companies
Raymond James analysts said Tuesday that the pausing of the Breezethrough products “puts more pressure” on other new products from Lululemon to outperform sales expectations in the second half. The analysts also noted “unfavorable” sales trends among companies like Ralph Lauren (RL) and Tapestry (TPR) that also target the higher-income customers who make up much of Lululemon’s customer base.
UBS analysts wrote last week that their conversations with investors indicate that Lululemon’s second- and third-quarter sales trends “look weak” in the U.S., while some believe there is “a good chance to buy an exceptional brand on a major pullback,” as shares have lost roughly half their value since the start of 2024.