Lululemon shares fall premarket after Jefferies downgrades stock to sell, says long-term targets likely to be revised downward

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Lululemon Athletica Inc. shares LULU, -3.73% fell 1.7% in premarket trade Monday, after Jefferies downgraded the stock to sell and said it expects the yoga gear maker to pull back aggressive long-term guidance in the coming quarters. Analysts led by Randal J. Konik said they expect the company’s second-quarter earnings to be released on Thursday will be strong and it will reaffirm its third-quarter guidance, “but that’s not our concern. Our downgrade thesis is based on a view that LT projections are aggressive across total revenues, EBIT margins, men’s, and international. We believe in coming quarters, LULU will have to walk back its long-term projections as competition rises, end markets weaken, and promos increase industry-wide,” they wrote in a note to clients. The thesis is based on the inventory overhang that is hurting clothing retailers across the board at present that are leading to major discounting. “We are seeing more evidence of slowing spend across apparel and general merchandise. More importantly, we are witnessing slowing spending trends across low- and high-income demos
broadly,” they wrote. Lululemon’s five-year targets depend heavily on international market growth with China accounting for much of its sales guidance of a more than $6 billion increase to more than $12 billion. “It’s clear macro issues are more severe across Europe and
in Asia than in the U.S. which could pressure LULU’s ability to meet lofty projections,” said the note. Lululemon shares are down 20% in the year to date, while the S&P 500 SPX, -3.37% has fallen 15%.

This article was originally published by Marketwatch.com. Read the original article here.

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