RBC Analyst Cuts Lululemon Price Target to Reflect Current Market

RBC Capital Markets has dropped its price target on Lululemon Athletica Inc. (LULU) to reflect the current risk premium.

Analyst Tal Woolley said in a note to clients:

A 200 basis-point increase in our cost of equity assumption, more reflective of current risk premium, drives the bulk of the revision to our target price.

He cropped his price target on Lululemon to C$30 from C$47.

However, the analyst still believes Lululemon is one of a handful of apparel retailers that “continues to generate solid top and bottom line performance in the currently difficult environment” thanks to unique and differentiated product.

Mr. Woolley noted that:

Tweaks to the model include seasonal clearance at the end of spring versus holding most clearance product until January/February.

He also added that the chain put selected seasonal items on sale in July. But Mr. Woolley believes the retailer did this because as square footage grows, warehouse sales no longer need to be the sole way to clear out extra inventory.

The analyst is estimating same-store sales at Lululemon in the second quarter, to be released Thursday, will be in the range of 18% to 20% and predicts per share earnings of C$0.13 versus C$0.09 last year.