Jefferies Thinks Lululemon’s (LULU) Growth Story Remains Under Strain, Maintains Sell Rating

On June 3, Jefferies analyst Randal Konik reiterated a Sell rating on Lululemon Athletica Inc. (NASDAQ:LULU) and maintained his price target of $220. His cautious view is driven by ongoing concerns around the company’s growth trajectory and potential loss of market share.

Konik points out that Lululemon’s sales growth could slow to its lowest rate in company history by 2025, with signs of weakness emerging in the North American market, still the core driver of revenue. Increasing competition is also a concern, as more brands aggressively expand, potentially threatening Lululemon’s dominance in the premium activewear market.

A customer in a specialty concept store wearing a full outfit of apparels and sports gear.

The company’s recent efforts to broaden its product mix beyond core areas have also raised questions, as the analyst notes that customer engagement has not improved and conversion rates are declining. This suggests that new product lines may not be resonating as expected with the brand’s customer base.

Lululemon is currently executing its Power of Three ×2 strategy, which aims to double net revenue from $6.25 billion in 2021 to $12.5 billion by 2026, focusing on product innovation, guest experience, and market expansion. However, operational risks remain.

In terms of operations, rising inventory levels are flagged as a potential headwind. Konik expects this to lead to heavier markdown activity (discounts), which could in turn weigh on gross margins. Additionally, the company’s increased reliance on outlet stores, which have risen by roughly 40% over the past four years, is viewed as a risk to Lululemon’s brand equity and pricing discipline in the long run.

Overall, these factors underpin the analyst’s Sell recommendation at current valuation levels.

Lululemon Athletica Inc. (NASDAQ:LULU) is an athletic apparel, footwear, and accessories company that caters to activities such as yoga, running, training, and other fitness activities.

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