Lululemon Athletica Inc.’s stock took a dive after it admitted 2017 was off to a slower than anticipated start, and while analysts still see the brand as a worthwhile investment, they warned that a period of slowed growth could be emerging.
The ath-leisure brand’s stock fell 23.4 percent to $50.76 Thursday, and while financial analysts seem to agree that the company is far from a downward turn, there is some consensus that Lululemon’s already sluggish growth for the year could continue.
As part of a Wednesday discussion on the company’s financial results for 2016, which saw Lululemon’s net revenue rise 14 percent to $2.3 billion and profits also increase 14 percent to $412.2 million, chief executive officer Laurent Potdevin noted that 2017 was off to a “slow start.”
This admission, along with Lululemon chief financial officer Stuart Haselden noting that online sales have dipped since the end of the fourth quarter and store traffic has also “softened” this year, sent Wall Street fleeing.
Several financial firms have since decided that the brand should still be considered a success story worthy of investment, especially considering the ongoing struggle by so many other retailers.
“We believe Lululemon remains a ‘better house in a tough neighborhood,’” Mizuho Securities USA Inc. said in a research note.
The investment bank went on to point out the brand’s plans to expand abroad with 15 stores, mainly in Europe and China, is a “compelling” growth opportunity.
Barclays agreed and added that Lululemon is already taking steps to increase momentum for this year, like injecting more colorful product options and changing up store displays, and said “the innovation pipeline and improved speed to market should be able to reaccelerate the company back to normalized levels of growth in the near term.”
Nevertheless, Barclays lowered its 2017 earnings guidance to $2.35 per share from $2.60 per share and set its estimate for 2018 at $2.80.
As for Lululemon’s plans to hit $4 billion in revenue by 2020, analysts think that goal is still within reach, but warned that results so far this year could be a sign that the company’s rate of growth is slowing down.
Credit Suisse said it initially expected comparable store sales to rise over the year by up to 3 percent, but the financier said in a Thursday note that it’s now expecting flat sales and added that “visibility into product drivers is less clear.”
Wells Fargo also took a dimmer view of Lululemon’s growth going forward and said fourth-quarter results “uncovered several issues that are likely to create an overhang on the stock for the foreseeable future.”
In particular the bank said top-line trends have “accelerated significantly” and pointed it that a sales slowdown is occurring both in stores and online.
“While there are still some attractive aspects of the Lululemon story [double-digit square footage growth, early-stage international expansion, dominant positioning within their core categories], we believe these positives are largely offset by the emerging risks in the model,” Wells Fargo added.
The bank also lowered its earnings estimate to $2.34 for the year from an initial expectation of $2.56.
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