Sell lululemon as athleisure peaks, denim popularity rises, analyst says
Canaccord downgraded yoga apparel maker lululemon (LULU) to Sell from Hold, saying that the company is facing mounting headwinds, including the rise of denim's popularity and fall of athleisure's. STRENGTHENING HEADWINDS: Luluemon faces a tough comparison because last quarter marked the one year anniversary of its successful decision to reorganize its pants in its stores by activity, Canaccord analyst Camilo Lyon tells investors. As a result, the company will face "rough comp challenges well into 2017," Lyon warned. Moreover, luluemon's inventories are rising and it is intensifying its online discounts, he wrote. Meanwhile, denim is becoming more popular at the expense of the "athleisure" products that lululemon sells, Lyon stated. Stating that the "athleisure apparel trend has peaked," Lyon predicted that the category's growth would drop to about 4% from about 7% previously. ESTIMATES, TARGET: Lyon lowered his Q3 comparative sales estimate for lululemon to 4% from 7% and trimmed his Q3 EPS estimate for the company to 42c from 43c. Moreover, the analyst cut his 2016 EPS estimate for the company to $2.02, versus its guidance of $2.07-$2.15. Finally, Lyon slashed his price target on the stock to $44 from $65. ATHLEISURE MARKET: The athleisure market is more crowded than ever and many brands have started selling athleisure items, including L Brands (LB) and Gap's (GPS) Athleta brand. PRICE ACTION: In early trading, lululemon slid 1% to $56 per share. Over the last three months the stock has declined roughly 18%
