TLDR
- Lululemon stock fell 1.7% in pre-market trading after Truist downgraded its rating to sell from hold
- Truist cut its price target to $94 from $115, citing limited turnaround visibility
- Comparable sales in the Americas declined for the fifth straight quarter in the first quarter
- LULU now has just one Buy rating against 30 Comments and three Sells on Wall Street
- Heidi O’Neill, the incoming CEO, will take over in September and faces a tough road ahead
Lululemon stock fell 1.7% in premarket trading Wednesday after Truist Securities downgraded the stock to sell from hold and lowered its price target to $94 from $115.
The stock is already trading near the lower end of its 52-week range, well above its 52-week high of $233.75.
Truist pointed to the very limited visibility of any credible turnaround and described the heavy pressure on the brand as the main reasons behind one of the most bearish official calls on LULU in recent months.
This downgrade comes on the heels of a rough first-quarter earnings report in early June. Revenue came in at $2.47 billion and EPS came in at $1.69, both narrowly beating consensus, but the details below were hard to ignore.
Comparable sales in the Americas declined for the fifth consecutive quarter. The gross profit margin is contracted. Management then lowered full-year revenue guidance to $11.0-$11.15 billion and trimmed EPS forecasts by more than $1 billion.
The report sparked a wave of negative analyst action, and Truist’s move was the latest in that sequence.
Wall Street turns bearish
Lulu The stock now has just one Buy rating on Wall Street, versus 30 Holds and three Sells. Morgan Stanley had already resumed coverage on July 6 with an Underweight rating and a $93 price target, making Truist’s $94 target consistent with the more bearish end of the street.
Analyst consensus has changed significantly since the Q1 report, and the downgrade cycle shows little sign of abating in the near term.
The new CEO faces a difficult task
New CEO Heidi O’Neill is scheduled to take office in September. Truist described the task ahead as very difficult given the current brand pressures and the lack of a clear incentive to improve.
There is no indication yet of what strategic changes O’Neill might bring, and Wall Street appears to be in wait-and-see mode.
The broader market did not help on Wednesday. the Nasdaq The S&P 500, +1.0% fell 0.4%, putting pressure on growth and consumer discretionary names across the board.
The lower-than-expected June PPI reading provided some overall relief, but was not enough to offset the company-specific headwinds hitting LULU.
The stock is now trading near the bottom of its 52-week range as investors wait for signs that the business has turned the corner.
Truist’s price target of $94 is well below current trading levels, and with the stock already down sharply from its highs, the downgrade has added new pressure in an already difficult session.
Morgan Stanley’s $93 target remains the lowest on the Street, with Truist now close behind in second place.
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