NEW YORK (TheStreet) -- Shares of Lululemon Athletica Inc. (LULU) are lower by 2.63% to $44 in pre-market trading on Friday, following a ratings downgrade to "underperform" from "neutral" at Sterne Agee.
The firm said it reduced its rating on the athletic apparel designer and retailer based on its belief the brand has been damaged due to the issues it was having in 2013, as well as an "uninspiring tenure" by the company's new CEO.
Sterne Agee said it's difficult for the company to regain its lost customers, especially when other retailers have increased their focus on women's apparel.STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.
The firm set a $39 price target on Lululemon stock.
"Many investors who believe in the potential of Lululemon are focused on the product and the potential for improvement. We have no doubt the product will improve, but believe it is too little, too late," the firm said.
Separately, TheStreet Ratings team rates LULULEMON ATHLETICA INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate LULULEMON ATHLETICA INC (LULU) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 17.4%. Since the same quarter one year prior, revenues rose by 13.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- LULU has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 6.39, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for LULULEMON ATHLETICA INC is rather high; currently it is at 53.99%. Regardless of LULU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LULU's net profit margin of 12.47% compares favorably to the industry average.
- Looking at the price performance of LULU's shares over the past 12 months, there is not much good news to report: the stock is down 38.86%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Textiles, Apparel & Luxury Goods industry average. The net income has decreased by 13.7% when compared to the same quarter one year ago, dropping from $56.46 million to $48.75 million.
- You can view the full analysis from the report here: LULU Ratings Report