Lululemon Slips as Citi Warns on Need for ‘Flawless’ Showing
Lululemon Slips as Citi Cautions Against ‘Flawless’ Performance
(Bloomberg) -- Shares of Lululemon Athletica Inc. dropped after the bell as a Citi analyst cut the athletic clothing maker to a neutral rating from buy, and warned investors of a turbulent year ahead.
After a 71% climb in 2019 before today, Lululemon was trading at over 22.5 times analyst Paul Lejuez’s estimate for next year’s earnings before interest, taxes, depreciation and amortization. Lululemon “has done nearly everything right,” but current valuations indicate “the market expects results to be flawless, leaving little room for disappointment,” he warned.
An unusual increase in promotions for the brand and markdowns on outerwear led Citi to believe margins on merchandise may be weaker than expected, and with today’s premium there is little room for Lululemon to disappoint. The expansion into new clothing categories like outwear and accessories may fuel “more inconsistency.” He lowered his estimate for this year’s earnings to $4.70 from $4.76 to reflect his more conservative margin assumptions.
Still, Lejuez was optimistic that the clothing company would achieve another quarter of double-digit comparable sales. He left his price target unchanged at $205.
Lululemon stock sank as much as 2.4% on Monday to $203, the biggest intraday drop since Oct. 2.
To contact the reporter on this story: Cristin Flanagan in New York at cflanagan1@bloomberg.net
To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm
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