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Lululemon has this big problem on its hands, analyst says

·Anchor, Editor-at-Large
·2 min read
In this article:
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Lululemon's leggings, shirts and jackets may have gotten too pricey especially as rivals such as Nike, Under Armour and Adidas are driving a lot of apparel creativity right now, often at cheaper prices.

"We have heard everyone talk about price increases, everyone from luxury down is able to take those price increases and is seeing tolerance for those increases. However, Lululemon is priced about 30% to 40% more. It will be hard to press the envelope down even further," said Bernstein retail analyst Aneesha Sherman on Yahoo Finance Live.

Sherman recently launched coverage of Lululemon's stock at Underperform with a $260 price target, warning about slower growth. The analyst also called Lululemon's products "pricey."

Evidence of slowing growth for Lululemon arrived in the company's most recent quarter. Sales rose 30% in the third quarter, slowing from a 61% growth rate in the second quarter. The company will announce its fourth quarter earnings and likely share guidance on March 29.

Shares currently trade at $315, down about 20% year-to-date.

Photo by: zz/STRF/STAR MAX/IPx 2021 5/15/21 Lululemon Athletica store in Downtown, Manhattan, New York City. (NYC)
Photo by: zz/STRF/STAR MAX/IPx 2021 5/15/21 Lululemon Athletica store in Downtown, Manhattan, New York City. (NYC)

Sherman is taking a cautious stance on Lululemon's upcoming venture into the sneaker market.

"I think it's a tough market to enter," Sherman said. "I think it will be harder to create sneakers and brand definition like they have had in womenswear and menswear."

Nike is a better play than Lululemon after its better than expected earnings on Monday evening, Sherman explained.

Sherman said in a note she is "expecting the brand to get stronger commercially as a result of this year's disruptions. Today's results reinforce our bull thesis."

Sherman reiterated an Outperform rating and $160 price target on Nike.

Nike shares rose 3% to $134 in Tuesday trading.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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