A shift from yoga pants may leave Lululemon investors in a sweat

Tue Dec 6, 2016 2:58pm EST
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By Noel Randewich

SAN FRANCISCO (Reuters) - Mutual funds that bought Lululemon Athletica's (LULU.O: Quote) stock in recent months may find themselves in a cold sweat if the retailer's quarterly report on Wednesday shows strong signs that leggings and other yoga apparel are falling out of fashion.

At least two stock analysts have reduced their expectations for the company over concerns that women are losing interest in the "athleisure" category that the Vancouver-based retailer helped popularize over the past decade.

Lululemon already faces relentless competition from Under Armour (UA.N: Quote), Nike (NKE.N: Quote) and a multitude of rivals selling less expensive gym-wear. A year of growth powered by an overhaul of its pants lineup may also be ending.

Mutual funds appear to have taken advantage of a 30 percent drop in Lululemon's stock since late August to buy. That decline has left Lululemon trading at 23 times expected earnings, lower than its five-year average of 29, according to Thomson Reuters Datastream.

Lululemon's stock on Tuesday rose 0.46 percent to $57.38.

In the past quarter, 86 mutual funds became new owners of Lululemon stock, eclipsing the 58 funds that sold out, according to Morningstar.

Pointing to evidence from apparel trade shows that consumers are shifting away from athleisure and toward denim, Canaccord analyst Camilo Lyon last week downgraded Lululemon's stock to "sell" from "hold."

Mizuho Securities analyst Betty Chen, who recently cut her price target for Lululemon to $60 from $68, said women are favoring ripped and distressed jeans as well as "retro" athletic styles from Adidas (ADSGn.DE: Quote) and Puma.   Continued...

People walk past a store of yogawear retailer Lululemon Athletica in downtown Vancouver June 11, 2014. REUTERS/Ben Nelms