Sterne Agee Downgrades Lululemon Athletica (LULU) to Neutral; CEO Departure Trumps EPS Beat

June 11, 2013 7:11 AM EDT
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Price: $67.92 --0%

Rating Summary:
    24 Buy, 13 Hold, 6 Sell

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Sterne Agee downgraded Lululemon Athletica Inc. (NASDAQ: LULU) from Buy to Neutral with a price target of $75 (from $90), noting the solid quarter was offset by the CEO resignation and a cloudy future.

"The pending resignation of the CEO trumps the beat and the better than expected guidance," analyst Sam Poser states. "Voids in leadership potentially threaten the cultural health of the brand."

He added, "We believe that the cultural cohesiveness that Ms. Day brought to LULU will be very difficult to replace. We are comfortable that Ms. Day, as she said, will remain at the helm and fully engaged until her replacement is comfortably in place. Nonetheless, the change in leadership is disruptive. On top of Ms. Day's pending departure is the need for three key positions within the organization to be filled: the SVPs of Product Design & Merchandise, of Logistics, and of Product and Supply Chain. Despite the fact that we are raising estimates and believe that 2013 guidance will prove conservative, and that Ms. Day believes that a solid 5-year plan and a 10-year vision are in place, the lack of information regarding the future leadership of LULU is of great concern."

Despite the downgrade, the firm is raising FY13/FY14 estimates from $1.98/$2.71 to $2.01/$2.78.

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 $82.28 yesterday.

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