Lululemon stock could sink another 30% from here: Jefferies

By:
on Jul 11, 2022
  • Jefferies downgrades Lululemon to "hold" with a price target of $200 a share.
  • Short Hills' Steve Weiss agrees with the bearish call on CNBC Halftime Report.
  • Lululemon stock is already down roughly 30% versus the start of the year.

Lululemon Athletica Inc (NASDAQ: LULU) is already down about 30% from its year-to-date high but a Jefferies analyst warns the pain is far from over yet.

Lululemon stock downgraded to ‘hold’

On Monday, Randal Konik downgraded the athletic apparel retailer to “hold” and announced a price target of $200 a share that translates to another 30% downside from here. The analyst wrote:

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While athletic apparel and footwear sector should continue to grow, COVID likely pulled forward demand with Lululemon one of the biggest beneficiaries. So, we see risks to consensus estimates ahead as competition rises and headwinds grow.

Konik is also concerned about the contracting margins. In its latest reported quarter, the Canadian firm said gross profit margin was down 3.2% on a year-over-year basis.

Steve Weiss agrees with the dovish view

According to the Jefferies analyst, supply constraints and more challenging comps will make it difficult for Lululemon Athletica to meet earnings estimates moving forward. He’s disappointed in the return on its $500 million purchase of “Mirror” as well.

The Nasdaq-listed company is currently trading at a slight premium to its peers. Agreeing to the bearish call on CNBC’s “Halftime Report”, Short Hills Capital Partners’ Steve Weiss said:

It’s a very high-priced consumer company. The pricing umbrella and valuation umbrella is dissipating. So, the stock should come down more. You don’t buy stocks because the valuation has come down, it’s where you think it’ll go.

In November of 2021, shares exchanged hands at an all-time high of $485.

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