Lululemon was downgraded to hold from buy at Needham on Monday as the company will faces tough year-over-year sales growth comparisons moving forward.
“We think [long-term] drivers remain intact (international, e-commerce, and men’s) and 1Q18 should be good on a strong start to the year and easy comparisons,” analyst Rick Patel said in a note to clients.
“However, we think the setup is more difficult for 2Q-4Q18 when LULU laps stellar execution from last year. Guidance for 2018 reflects the continuation of strong momentum and the Street is already modeling this. Because of this and its premium valuation, we see less potential for upside, and accordingly move to the sidelines,” Patel said.
Shares of Lululemon have been on a tear over the past year, surging more than 80 percent. The stock is also up more than 22 percent in 2018. Lululemon fell 1.7 percent in the premarket Monday.
Patel added the company’s operating margin expansion is likely to moderate. “In ’18, we see opportunity for higher [gross margins] from using less airfreight and improved product margin
(fewer markdowns) but we think the low-hanging fruit has been picked,” he said.