On Friday, Wells Fargo (NYSE:WFC) adjusted its outlook on Lululemon Athletica Inc. (NASDAQ:LULU), reducing the price target to $425 from the previous $450 while maintaining an Equal Weight rating on the stock.
The revision reflects concerns over the company's pace of growth, particularly in the Americas, which has been described as "soft." The analyst from Wells Fargo noted that as Lululemon transitions from a period of hypergrowth to more subdued growth, a compression in the stock's multiple is anticipated.
The report highlighted the recent fourth-quarter performance, focusing on the future rather than the past results. The key takeaway was the confirmation of investor worries regarding a slowdown in the U.S. market.
Lululemon mentioned facing a "dynamic" U.S. market with a "soft" consumer presence and broad-based challenges, despite positive traffic. The first-quarter revenue guidance was set at an increase of 9-10%, which is below the Street's expectations of a 13.5% rise, suggesting that North American comparable sales might be negative.
Growth in regions outside the U.S. appears to be robust, but the domestic market is experiencing the most significant competitive pressures. The analyst's comments indicate that the weaker performance in the U.S. is creating a more challenging environment for Lululemon's stock at present. The new stock price target of $425 reflects these updated expectations for the company's financial performance.
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