NOTICE TO CONSUMER
Lululemon Athletica Inc. looks a lot like Under Armour Inc. did a year ago: It has a great brand and strong demand trends, but also plenty of challenges, says Canaccord Genuity analyst Camilo Lyon.
The challenges include supply chain issues that are disrupting product availability, competitive pressures that appear to be intensifying, a turnover in senior management, and a reduction in second-half guidance.
At Under Armour, once these issues were resolved, sales growth picked up and its shares recovered. The stock is up roughly 60% this year, while Lululemon is down 6%.
“We expect a similar set of events to occur for Lululemon over the coming months as its transitory issues abate and sales begin to reaccelerate,” Mr. Lyon said in a research note, reiterating his buy rating and US$85 price target on the stock.
He expects the announcement of a new CEO before the end of 2013 will help remove a significant overhang. The analyst also pointed out that recent CEO appointments have been favourable for their companies’ share prices, averaging a 7.6% gain on the day of the news and a 16.2% increase in the subsequent three months.
“We expect Lululemon to respond similarly once this uncertainty is lifted,” Mr. Lyon said.