This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Analysts to Lululemon: What Are You Doing?

NEW YORK (TheStreet) - For a company that once had so much momentum behind it, the growing number of mishaps at lululemon athletica (LULU - Get Report) doesn't bode well for its stock, and analysts are becoming concerned.

Sterne Agee analyst Sam Poser downgraded the yoga and athletic apparel company's stock to "underperform" from "market perform" on Thursday saying the company is "alienating its customer."

"The current valuation of over 27 x 2014 earnings is not sustainable as the company is alienating the customer," Poser writes in a research note. "Recent comments from LULU's Chairman/founder, on top of shear and pilling problems, and the ongoing search for a new CEO lead us to the aforementioned conclusion. We see little risk to current trends but expect SSS deceleration" in 2014.

Poser lowered his 2014 earnings estimates by 16 cents to $2.33 and same-store sales estimates to 6% from 8% growth. He established a $56 price target.

Must Read: Wal-Mart Beats Wall Street Estimates by a Penny

"We believe the care afforded to product quality, innovation, and customer care, which allowed for sales/SqFt of over $2,000 and approximately 25% EBIT margins, has dissipated," Poser adds.

Lululemon continues to have a rough year that is starting to affect the brand. From having to recall pants in March over complaints about sheerness to the surprise resignation announcement by CEO Christine Day in June to more recent complaints about sheerness and pilling on the expensive pants.

But the icing on the cake was founder Chip Wilson's insensitive comments blaming women's bodies for the pilling occurring on yoga pants. "Quite frankly, some women's bodies just actually don't work for it," he told Bloomberg last week.

Shares were trading 4% lower after market open to $66.20 on Thursday. The stock is down 9.5% this year, compared chief rival Under Armour (UA - Get Report), whose shares have risen 70% this year. Shares of Nike (NKE) and Columbia Sportswear (COLM) that also play in the active wear space have risen 52% and 29%, respectively this year.

"LULU's missteps may open the door for Nike, Under Armour and L Brand's (LTD) Victoria's Secret: All three are increasing focus on LULU's categories and bring tougher competition than LULU is used to," Morgan Stanley analyst Kimberly Greenberger writes in a Nov. 14 note. "The bear case is rivals pressure LULU's 25% EBIT margins more than expected, causing meaningful P/E contraction given 74% of LULU's price is based upon post-2015 growth."

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
LULU $65.55 0.00%
UA $43.94 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs