Besides recent trends that have impacted athleisure, Jefferies takes a sobering look at the lackluster merchandise that Lululemon (NASDAQ:LULU) is offering and thinks the company’s performance has peaked amid rising competition, shifting consumer tastes and spending habits.
Jefferies analyst Randal Konik took a first-hand look at Lululemon’s (LULU) merchandise offerings and was unimpressed with the color assortment, as well as the level of merchandise added to the sale rack, and ample inventory of outerwear heading into the summer season.
The firm gives the company an Underperform rating and price target that is 26% below Monday’s closing price.
Jefferies is not the only bear on Lululemon (LULU) as competitors encroach on the popularity of comfortable clothing. Barclays moved to the sidelines and downgraded the stock to Equal Weight from Overweight on signs that sales growth is not accelerating relative to peers like Vuori, Alo Yoga, and FP Movement (URBN).
With fashion constantly evolving, analysts view Lululemon’s (LULU) close association with athleisure as a potential hindrance to its efforts to branch out into things like wide-legged pants.
“We believe teens and young women may shift their dollar spend away from categories in which they have significant product pre-existing in closets,” Barclays analyst Adrienne Yih said in an earlier research report.
With rivals like Alo and Vuori as pricey as Lululemon, price sensitive consumers might shift their discretionary dollars back to more affordable names like Nike (NKE), Adidas (ADDYY, ADDDF), Gap (GPS), and Columbia Sportswear (COLM), prompting Konik to recommend investors “monitor the competitive landscape as it appears to be heating up.”
Lululemon (LULU) shares are in the red for a fifth consecutive day and are down 36% year-to-date compared to an 11.3% gain in the S&P 500, 1.5% gain in GPS, 6.6% gain in COLM, and -17% drop in NKE.
