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Investing.com - Jefferies has reduced its price target on Lululemon Athletica Inc. (NASDAQ:LULU) to $160.00 from $175.00 while maintaining an Underperform rating on the stock. The stock, currently trading near its 52-week low of $218.45, has declined over 45% in the past six months. According to InvestingPro analysis, the company maintains impressive gross profit margins of 59.34%.
The adjustment follows Lululemon’s recent opening of its first Italian store in Milan, a two-story location spanning approximately 5,700 square feet. Competitor Alo Yoga is simultaneously preparing to launch in Rome with what Jefferies describes as a smaller, likely more efficient footprint. With a current ratio of 2.28, InvestingPro data shows Lululemon maintains strong liquidity to support its expansion efforts.
Jefferies expressed concern about Lululemon’s expansion strategy, noting the Milan location suggests higher rent and build-out costs compared to Alo’s approach. The firm views this as part of Lululemon’s continued push for growth while seeing "incremental ROIC deteriorating."
The research firm highlighted increasing markdowns and growing outlet reliance in the U.S. market. Internationally, Jefferies pointed to price cuts and heightened competition in China, along with past store closures in key European markets like Germany and the UK as indicators of potential challenges.
Jefferies warned that with rising fixed costs and fundamentals such as sales per square foot and margins at peak levels, the company faces a "significant cut to earnings ahead."
In other recent news, Lululemon Athletica Inc. is set to open its first Italian store in Milan’s central shopping district, marking a significant expansion for the company. This new location will cover 5,700 square feet and offer a range of men’s and women’s collections. Meanwhile, Evercore ISI has adjusted its price target for Lululemon to $265, citing growth concerns, although the firm maintains an Outperform rating. Stifel continues to support Lululemon with a Buy rating, emphasizing the company’s innovation cycle as a potential driver for future growth. TD Cowen also maintains a Buy rating with a $321 price target, despite noting challenges such as negative U.S. traffic trends and rising competition. In legal news, Lululemon has filed a lawsuit against Costco (NASDAQ:COST) for allegedly selling knockoff versions of its popular products, which the company claims could harm its reputation. These developments highlight a mix of strategic growth initiatives and challenges facing Lululemon in the current market landscape.
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