Lululemon Faces Challenges Ahead

by Warren Seah

Lululemon, the popular yoga apparel brand, may be encountering obstacles in its path to success, according to one analyst.

The company’s iconic “pant wall,” which showcases its signature yoga pants, underwent a significant transformation in 2015. This change proved to be advantageous for Lululemon over the past year; however, the positive momentum is expected to subside as future quarters will be compared against these improved results. The upcoming fourth-quarter earnings report, set to release in early spring, will mark the beginning of this challenging comparison.

In a research note published on Wednesday, CLSA analyst Rick Patel expressed concerns about Lululemon’s ability to sustain growth without substantial innovation, especially when faced with tougher comparisons. Patel initiated coverage of the stock with a price target of $73, representing just a 7% increase from its current value of $68.50, as he predicts that the company’s shares will underperform compared to the overall market. Patel also holds a relatively pessimistic outlook on Nike.

While Lululemon does have some potential for growth in relatively new areas, it remains uncertain whether these ventures will be successful.

One area of potential struggle for Lululemon is in menswear. Firstly, the brand’s recognition primarily lies with women. Additionally, Patel pointed out that the areas in which Lululemon aims to expand are already dominated by sports apparel giants like Nike and Under Armour. Moreover, Lululemon’s products tend to have a higher price point compared to similar items from its competitors.

“While pricing has not been a hurdle for women’s bottoms, we anticipate challenges in other categories due to the dominant position of competitors,” explained Patel.

The Bigger Picture

Lululemon’s recent growth has set higher expectations for the company’s future performance, presenting a challenge as it strives to impress investors moving forward. Furthermore, forays into new territories like menswear pose their own set of challenges for an already well-established brand.

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