On Friday, Stifel has adjusted its outlook on Lululemon Athletica Inc. (NASDAQ:LULU), reducing the 12-month share price target to $539 from the previous $596 while sustaining a Buy rating for the athletic apparel company.
The adjustment follows Lululemon's fourth-quarter earnings, which surpassed their pre-announcement figures. However, the company's shares experienced downward pressure due to first-quarter guidance falling below consensus, as well as an annual forecast suggesting an acceleration from the anticipated first-quarter revenue trend.
The company's cautious first-quarter guidance was attributed to a softer U.S. consumer climate. Stifel's commentary noted that the first quarter is traditionally the lowest seasonal period in apparel retail and that February's sales were notably affected by winter storms. Despite these challenges, Stifel remains optimistic about Lululemon's sustained growth in North America, projecting a high single-digit growth rate as achievable.
Stifel's analysis acknowledges that the growth rates in North America will inevitably slow due to the significant scale the company has already achieved. However, with international growth expected to be robust, albeit lower than the 54% seen in fiscal year 2023, the guidance suggests a modest 4.5% growth for North America.
Stifel encourages investors to capitalize on the current weakness in the share price, anticipating that revenue growth will lead to increased earnings and a positive impact on the stock as the year progresses.
The firm's maintained Buy rating reflects confidence in Lululemon's business model and the expectation that the company will continue to leverage its selling, general, and administrative expenses to boost earnings throughout the year.
Despite the revised price target, Stifel's stance suggests that the firm sees potential for Lululemon's stock to recover and provide returns for investors who are willing to invest during this period of market skepticism.
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