Investors Keep Punishing Lululemon Athletica

Investors aren't done punishing Lululemon Athletica (LULU).

The yoga apparel maker disappointed investors Thursday when it said it would report far lower sales during the fourth quarter than investors had expected and cuts its full-year financial forecasts for the current year. In doing so, Lululemon erased the good will it had earned Tuesday, when it announced that its controversial founder, Chip Wilson, was out as chairman and a new CEO was in.

Investors sent the shares plunging, and Barrons.com weighed in bearishly on the  stock, noting the challenges facing the new CEO (see Barron’s Take, “Lululemon: Bottom-Fishers Beware,” Dec. 12).

Today, the selloff continued amid a string of slashed earnings estimates, price target cuts and a downgrade by Credit Suisse.

At $59, Lululemon fell 2.3%, adding to yesterday's nearly 12% drop.

In a note published today, Credit Suisse analyst Christian Buss cut Lululemon from Outperform to Neutral and cut its price target by one-third to $59, calling the company's lowered expectations "a significant source of concern." He writes:

… we no longer think that product flow issues are holding back the comp significantly. Instead, we view it as increasingly likely that recent quality issues and communication missteps, as well as the increase in availability of lower-priced knock-offs of their core assortment are holding back demand. This suggests a structural change in the demand equation and suggests caution is in order going forwards.

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Mizuho Securities analysts Bety Chen and Alex Pham cut their price target from $70 to $60. They wrote:

With weak 4Q guidance, which suggests further comp deceleration, we believe the company may continue to suffer from the intensifying promotional retail environment, particularly as LULU does note typically promote, as well as impact from further issues with product flow. While we are encouraged by opportunities within new product categories, men's, and the growth of ivivva, we remain sidelined until we can see a re-acceleration in comps and as we anticipate further investment may pressure margins in 4Q and beyond.

And Wedbush Securities cut its outlook on the stock from $75 to $68. Analyst Corinna Freedman writes:

Stock essentially de-risked, but likely range-bound through year-end… Mgmt continues to expect product flow issues to continue through 2014 and we believe top-line expectations for 2014 are now reset for the incoming CEO.