FBR Capital Downgrades Lululemon Athletica Inc. (LULU) to Underperform

FBR Capital downgraded Lululemon Athletica Inc. (NASDAQ: LULU) from Market Perform to Underperform with a price target of $42.00 (from $55.00), saying they see strong sales at the expense of margins.

Analyst Susan Anderson commented, "We downgrade LULU to Underperform (from Market Perform) and lower our price target to $42 (from $55), which represents –20% potential downside from its previous close of $52.50. While we believe that LULU has a strong women's customer base, that it has gained traction in men’s, and that kid’s has potential, the elevated inventories, supply chain issues, mix shift, and fixed-cost de-leverage will likely weigh more on GM than expected. Our checks have shown significantly higher clearance levels in-store and online over the past few weeks. While we believe TG/BF sales were very strong, our checks showed most people buying the significant amounts of clearance available in stores. As a result, we lower our 4Q15 GM estimate to –290 bps (from –20 bps and consensus at –69 bps) and our 2016 gross margin to +22 bps (consensus of +180 bps). We also lower our EPS estimates: for 4Q15 to $0.76 (from $0.86), 2015 to $1.80 (from $1.90), and 2016 to $2.13 (from $2.29)."

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For an analyst ratings summary and ratings history on Lululemon Athletica Inc. click here. For more ratings news on Lululemon Athletica Inc. click here.

Shares of Lululemon Athletica Inc. closed at $52.50 yesterday.

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