Lululemon shares are closing July with good results, but there are problems on the horizon that make Jefferies analysts think that the immediate future (until mid-2023) would not be promising.
The consultancy sees Lululemon shares below the $200 price target, even though they now trade at a weekly average of $300.
Nike and Under Armour offer disparate outlooks for those who prefer to invest in the sportswear sector.
Jefferies has downgraded Lululemon’s expectations and that is not a good sign for the brand.
The multinational financial services firm downgraded the sportswear company because it believes it will struggle to enter new sectors in the absence of what should be “a consistent portfolio” of male ambassadors and sponsorship deals such as those with Adidas, Nike and Under Armour.
Specifically, according to Jefferies, everything stems from the fact that Lululemon has not finalized the registration of male ambassadors already announced: Joe Wicks, fitness trainer, Jordan Clarkson, basketball player member of the NBA’s Utah Jazz, and actor Matt James.
We are lagging behind, the brand had said days before Jefferies’ forecasts.
The Canadian company, which sets its price target at US$ 200, started July with its shares trading at US$ 263, then improved to US$ 293 on July 8, and, after a slight drop, rebounded to US$ 302 on Friday, July 22.
Competition from Lululemon and target price
The New York-based financier noted that Lululemon is facing increasing competition from the likes of Vuori, Athletica, Rhone and Alo, and that the market in which it sells is becoming increasingly crowded, so they are skeptical about its ability to grow.
At least, not as fast as they expected.
In this way, he also added his concern that sales per square meter of floor space would not be as anticipated, as well as margins and forecasts.
Another piece of information from Jefferies: stocks may be overvalued because they have been boosted by the pandemic crisis.
A possibility of slower growth given that data may hamper Lululemon, Jefferies says. In addition, improving competitor brands also make up another element to think about when making investments in the sportswear firm.
Lululemon is set to contract as growth slows, so Jefferies recommends underweight rating Lululemon stock, with its price target downgraded from $375 to $200.
Under Armour at $9: buy or wait?
Jefferies, furthermore, in the same report, underweighted Under Armour, with a price target downgrade from $20 to $10.
The bank expressed concerns about the instability of its management following the departure of Patrik Frisk as president and CEO of the company.
It also warned of strong comparisons coming up.
Under Armour shares are at a tricky price to analyze, according to Jefferies.
They were almost all of 2021 at their $20 peaks, but now are barely above $9.
However, although the fall is greater than that of the sector it is part of, the fact is that it is far from its highs and, with some marketing and a tailwind, it could recover ground.
Under Armour shares reached a high of $50 in 2015.
Nike from Jefferies’ point of view
Already entering the “Nike world”, a serious giant in the sector (along with Adidas), Jefferies said it continues to see the U.S. company as the owner of footwear and sportswear in a market with a high fragmentation, so it kept its price target at U$S 156.
They noted from the financier that they prefer Nike’s shares relative to Lululemon’s, specifically because of the women’s footwear line launched by the Canadian company some time ago and because next year’s men’s launch presents potential headwinds to profit margins.
Jefferies analysts said that if there is a choice between one and the other, they have a preference for Nike stock (and not Under Armour) because of recent changes at the top, something that could lead to some instability.
Lululemon: new landings
Lululemon is landing in Spain in September with the opening of stores in the main cities, Madrid and Barcelona, after opening a website specifically for the Spanish market.
With its “Power of Threex2” growth project, Lululemon estimates that its international revenues will quadruple by 2026 compared to last year’s levels.
Expansion is, in addition to product innovation and consumer experience, one of the three key elements of its growth plan.
Lululemon’s international sales in 2021 had reached $958 million, 15 percent of its total revenue, with compounded growth rates of nearly 40 percent over three years.
The company is now pursuing a new “omnichannel” approach, with the idea of extending the store network and digital commerce, as well as expanding geographically.
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