Analysts raise concerns as Lululemon halts Breezethrough line, impacting financial targets and stock performance
Lululemon Athletica Inc. shares have reached their lowest level in four years, according to BNN Bloomberg.
Analysts express new concerns regarding the company's ability to meet financial targets due to ongoing product execution issues and a decline in activewear trends.
On Thursday, shares dropped 9.1 percent, closing at their lowest level since May 2020. This decline followed the company's announcement that it would halt sales of a newly introduced product line.
The stock has plummeted 52 percent this year, setting the stage for its worst annual performance since 2008, based on Bloomberg's data.
Lululemon has suspended sales of its Breezethrough yogawear to “make any adjustments necessary to deliver the best possible product experience,” a company spokesperson stated in an emailed message to Bloomberg News on Wednesday.
This move led JPMorgan to remove Lululemon from its list of top stock picks. Analysts, led by Matthew Boss, noted in a Thursday report that halting the Breezethrough product line eliminates a crucial revenue driver for the retailer in the latter half of the year.
“Breezethrough compounds recent in-stock/colour palette execution concerns, pushing out the reacceleration catalyst likely to 4Q/Holiday with our recent fieldwork pointing to no signs of near-term improvement through 2Q,” said Boss, who maintains an overweight rating on the stock.
Citigroup also downgraded its rating on Lululemon shares from buy to neutral, citing credit card data that indicates a further slowdown in active apparel trends during the second quarter.
Analysts have highlighted several issues with Breezethrough, including product allocation to stores, pricing, fit, and comfort. This launch adds to the series of ongoing challenges at Lululemon. Recently, the company’s legging business suffered from a lack of new colours and the unavailability of certain sizes.
During the company’s June conference call, CEO Calvin McDonald mentioned that revenue growth would accelerate in the second half of the year, driven by “upcoming product launches and innovation.”
However, Citi’s Paul Lejuez warned that the active apparel category trends are unfavourable for Lululemon. After three years of robust growth, the sector has “slowed meaningfully” in 2024, with no signs of improvement later this year.
“This dynamic, coupled with Lululemon’s execution issues (lacklustre product assortment/lack of colour/sizing), leave Lulu more susceptible to increased competition and promotional pressures,” Lejuez wrote in a note.
Lululemon is set to report its second-quarter results in late August. Currently, the stock has 25 buy-equivalent ratings, 10 holds, and four sells, as tracked by Bloomberg. The average price target is $379, implying a 53 percent upside from the current level.
