The rising intensity of product markdowns at Lululemon Athletica Inc. prompted a downgrade of the stock at Credit Suisse on Wednesday.
Analyst Christian Buss reduced his rating on shares of the yoga apparel retailer to neutral from outperform, along with a price target cut to US$53 from US$76.
He found that price reductions rose at a 2.7 per cent pace this quarter, higher than the 2.5 per cent seen a year ago and 2.0 per cent last quarter.
It also marked the highest markdown intensity rate in the past 14 quarters, as discounting picked up in all core categories for men and women at Lululemon.
That has Buss warning that the company looks less likely to be able to sustain its recent revenue momentum, specifically given more discounts in women’s tops.
“This is particularly concerning in light of new top introductions for fall that we had hoped would support productivity recapture from lapsed customers,” the analyst said in a research note.
The average original price of women’s top has declined from US$73 in June to US$57 in October – a 28 per cent dip. That suggests Lululemon is finding it difficult to sell these items at full price.
Buss also noted the substantial increase in the percentage of apparel on sale this quarter, with that number climbing to 13.9 per cent from 8.6 per cent last year and 10.6 per cent last quarter.
The analyst warned that recent data points to a reversal of improving trends seen in the past three months.
“This suggests that Lululemon product is not resonating with consumers, with average unit retail (the average price an item was sold at that week) degrading likely pressuring comps going forward,” he said.
Source: The Financial Post