Lululemon Athletica inc. (NASDAQ:LULU) shares are crashing 23% even after the yoga fashion empire delivered beats yesterday for its fourth quarter of 2016. The giant is falling prey to what Oppenheimer analyst Anna Andreeva believes is an audience that though in the back half of 2016 liked the neutral hue craze now desires more Spring-vivid colors in the fashion line.
In reaction, the analyst reiterates an Outperform rating on LULU while reducing the price target from $75 to $65, which represents a 27% increase from where the shares last closed. Additionally, the analyst has lowered her projection for 2017 down to $2.35, considering escalating SG&A expenses that have “outpaced” sales growth the past three years running.
Andreeva comments that though Lululemon brought in an “impressive 4Q16 beat” thanks to back-to-back “accelerated” gross margin gains, the problem lies in lack of innovation. “Not enough color,” explains the analyst, elaborating, “LULU stuck to what worked for too long, with conversion this Spring still positive but traffic deteriorating.”
On a positive note, LULU is responding with a fresh new tackle to its line, adding a new Nulux fabric, color on its way in the upcoming week, and a bra launch to hit the back half of the year. Moreover, the giant will be jumpstarting its first worldwide “strategic” brand campaign helmed from a digital slant, compared to its past prioritization of “community outreach.”
“Similar to the industry, despite very robust 4Q16 (beat on both comps and margin, estimate January comps up double-digits) LULU is proving not immune from environment as neutral color palette that worked in 2H16 isn’t resonating this Spring, as the consumer wants more fashion/newness. We think QTD comps running in line with negative LSD guide, April/May compares ease; while stock is reacting, it has only been two months of product not resonating after very strong holiday. While disappointing, as quarters continue to ebb and flow (three out of last ten quarters missing consensus EPS), LULU’s brand equity in our view still remains intact; with double-digit square footage growth, LULU still warrants a premium,” Andreeva surmises.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, three-star analyst Anna Andreeva is ranked #1,546 out of 4,555 analysts. Andreeva has a 46% success rate and realizes 2.5% in her yearly returns. When recommending LULU, Andreeva yields 15.7% in average profits on the stock.
TipRanks analytics demonstrate LULU as a Buy. Based on 21 analysts polled by TipRanks in the last 3 months, 9 rate a Buy on Lululemon stock, 9 maintain a Hold, while 3 issue a Sell. The 12-month average price target stands at $64.82, marking a nearly 27% upside from where the stock is currently trading.