Jefferies Calls A Peak To The 'Athleisure' Trend, Downgrades Lululemon

A week after Lululemon Athletica inc. LULU provided a downbeat forecast and lower-than-expected same-store sales for the second quarter, Jefferies downgraded the shares from Buy to Hold. Analysts Randal J. Konik and Janine Stichter have also reduced their price objective from $80 to $76 on the company's shares.

The company missed EPS estimates in two out of the last four quarters. The brokerage believes the five main factors, which were behind its upgrade in April, have now reached their logical ends, which subsequently resulted in a 30 percent stick price gain year-to-date.

Related Link: Lululemon Could Stage A 21.8% Rebound, Vetr Crowd Says

"While we believe LULU still has ample [opportunity] to grow its top-line and expand op margins, we believe this is now largely factored into the stock. On top of this, we believe the athleisure trend is now starting to peak," the analysts told clients in a research note.

While pointing out considerable growth is ahead for Lululemon, the brokerage thinks that is already reflected in valuation. Therefore, Jefferies thinks both kids and international segments will dilute margins. At the same time, it would not make any big dent in revenue generation.

The brokerage believes the trend in athleisure has started to reach flat terrain. Therefore, the analyst sees slight growth in the upcoming period due to the plethora of players in the space wanting to expand their wallet share.

At time of writing, Lululemon was down 2.13 percent at $66.78.

Full ratings data available on Benzinga Pro.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!