Jefferies analysts on Thursday maintained their Underperform rating for Lululemon Athletica Inc. (NASDAQ: LULU) and set a price target of $220.00, despite the company’s fourth-quarter performance exceeding consensus expectations. Lululemon’s market capitalization stands at $41.52 billion. While the retailer saw sales align with projections, concerns linger about its future performance.
Lululemon reported a 10.84% year-over-year increase in revenue, with gross margins improving by approximately 100 basis points. Operating margins rose by 40 basis points, reaching 28.9%, surpassing the expected 28.0%. These results led to earnings per share exceeding the company’s guidance. However, Jefferies analysts pointed out that Lululemon’s comparable sales in the Americas remained flat, signaling a potential slowdown. The analysts also raised concerns about rising inventory levels and a subdued outlook for 2025.
Despite these challenges, Lululemon’s gross profit margins remain strong at 58.85%, and the company trades at a price-to-earnings ratio of 24.56. Jefferies’ cautious stance is based on expectations that further growth in sales and earnings may be difficult. Despite this, InvestingPro’s Financial Health Score rates Lululemon as “GREAT,” indicating solid liquidity with a current ratio of 2.0.
In the broader retail environment, Lululemon faces shifting consumer trends and patterns of spending. While it exceeded earnings expectations in the fourth quarter, analysts caution that the company’s flat sales in the Americas and rising inventories could hamper future growth. The analysts’ Underperform rating reflects a belief that Lululemon’s stock may underperform both the market and its competitors in the near future.
TD Cowen, Needham, Raymond James, and Morgan Stanley analysts have also weighed in on Lululemon’s prospects. TD Cowen maintained a Buy rating with a price target of $445, citing favorable valuation and potential for share buybacks, while Needham lowered its target from $475 to $430, keeping a Buy rating. Raymond James holds an Outperform rating with a $430 price target, citing promising growth indicators. Morgan Stanley, however, lowered its target to $411, reflecting cautious expectations for future earnings amid uncertainties in the U.S. market.
In summary, while Lululemon has demonstrated financial strength in its recent earnings report, analysts remain divided on its growth prospects. Jefferies’ cautious outlook, marked by flat sales in the Americas and rising inventory, contrasts with other analysts’ more optimistic views on the company’s potential for future growth. Investors can access further insights into Lululemon’s valuation and prospects in InvestingPro’s detailed Pro Research Report.
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