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Jefferies analysts released a note Thursday providing bearish commentary on Lululemon Athletica (NASDAQ:LULU), stating the company’s “fundamentals have peaked.”
The analysts maintained an Underperform rating and a $200 per share price target on the stock.
“Why own LULU when you can own NKE?” the analysts questioned.
“Our latest web scrape data (via Vertical Knowledge) shows that LULU’s depth of discounting remains elevated YoY, and we think markdowns are likely to weigh on results going forward with inventory up ~85% YoY in 3Q. To this end, the average discount was 14% in November, up ~470bps YoY (in line with October). Meanwhile, we saw a sequential improvement in the YoY change in % of items on sale in November, but the overall % of items on sale remains up significantly vs. last year (~41% vs. ~31%).,” they wrote.
The analysts described Nike (NYSE:NKE) as a “best-in-class brand” and the “clear winner in a duopoly in the more attractive athletic footwear space.”
“NKE put up robust 2Q numbers (see our recap note), with total growth up 27% on a currency-neutral basis, showcasing best-in-class performance for a brand that does ~$70B of adjusted retail sales annually. In our view, NKE is the clear leader in a duopoly with Adidas and operates in the more attractive athletic footwear category. Meanwhile, LULU operates in the increasingly competitive space of athletic apparel, where brand heat can shift at any moment,” the analysts elaborated.
As a result, they told investors Jefferies recommends buying NKE and selling LULU.
