Affected by the departure of product director Sun Choe and the restructuring of sales and brand functions, Lululemon's stock price fell 9.34% this week. Its results for the first quarter of the fiscal year will be announced after the close of trading on June 5.
Canadian sports brand Lululemon has had a bleak start to the year, and the departure of a key executive this week has further heightened Wall Street's concerns about the company's upcoming earnings.
On May 21, local time, Lululemon issued an announcement announcing the departure of its product director Sun Choe. The company said it will create a new team of leaders from sales and brand functions. Affected by this, Lululemon's stock price fell 9.34% this week. Since this year, the company's stock price has fallen by more than 40%, making it the worst performing stock in the S&P 500 index.
This change is certainly a huge reversal for Lululemon, which has been performing strongly in US stocks for the past few years. Previously, there was strong consumer demand for Lululemon's yoga pants and other sportswear. However, the company's lackluster annual results outlook released at the beginning of this year, signs of weakening sales trends in the first quarter, and increased market competition have put pressure on its stock price this year.
“Obviously, the narrative surrounding the company has deteriorated, so we no longer think Lululemon can get such a high valuation as it has in recent years,” Wedbush Securities analyst Tom Nikic wrote in a report after the company announced organizational changes. He maintained the stock's “outperforming the market” rating, but lowered the 12-month price target from $492 to $397.
It is worth mentioning that Lululemon will announce its results for the first quarter of the fiscal year after the market closes on June 5. Evercore ISI analyst Michael Binetti said investors are looking forward to the company's updates on product development and sales strategies.
Binetti claims that CHOE's departure prompted him to remove Lululemon from his preferred list. Although he maintains Lululemon's “outperforming market” rating and is optimistic about the company's development in the international market, his confidence in its recent business development has weakened.
What matters to investors is Lululemon's outlook for the current quarter, as the company's US sales trend in the first quarter has been weak so far. Binetti said the May data has been mixed so far.
“This is a sign of inconsistency,” he said, “which is why it is so important to update the earnings report after a few weeks.”
It should be noted that Lululemon is not the only sportswear company in trouble as consumers reduce discretionary spending, especially in categories that have been heavily consumed during the pandemic. For example, Nike's stock price has dropped 15% this year, and Under Armour's stock price has dropped 24%.