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Lululemon’s (NASDAQ:LULU) dominance in the athleisure market could start wearing thin as competitors encroach on its popularity, and as teens and young women go back to buying dress pants over yoga pants. Although Lululemon (LULU) still has a solid long-term business model, Barclays is moving to the sidelines, downgrading the stock to Equal Weight from Overweight on signs that sales growth might no longer be accelerating relative to peers like Vuori, Alo Yoga, and FP Movement (URBN).
“We believe teens and young women may shift their dollar spend away from categories in which they have significant product pre-existing in their closets,” Barclays analyst Adrienne Yih said, adding that, “if a shift emerges in 2H24 then we believe the decelerating trends we are seeing at LULU may require more than a short-term fix with a quarter or season,”
With the macroeconomic environment in the U.S. still volatile and unpredictable, Yih worries that Lululemon (LULU) might have difficulty sustaining new profit highs, especially as U.S. markets seem to be peaking on sales productivity.
“We do not consider this to be a brand health or brand desire issue, but one of reaching extraordinarily higher levels of productivity and profitability,” Yih says.
Barclays will remain on the sidelines until there is evidence of brand re-acceleration into the spring/summer season and to gather more channel check data points to determine whether the deceleration is a “short-lived blip, or a medium-term trend.”
Besides a downgrade, Yih also lowered her price target by 28% to $395 and her EPS target for FY25 to $15.81 from $16.06 and for FY26 to $17.61 from $18.09. FY24 EPS estimate remains unchanged at $14.
Lululemon (LULU) shares slipped at the open but have recouped some of their earlier losses to trade 0.7% lower into the second half of the day.
Wall Street is split on its outlook for Lululemon with Seeking Alpha authors and Wall Street analysts rating it as a Buy but Seeking Alpha’s Quant rating a Hold.