Lululemon slides after Credit Suisse downgrade

Fri Jan 4, 2013 11:10am EST

A Buddha shrine sits at the entrance of Lululemon Athletic, a yoga clothing store, as a woman shops with her dog in San Francisco, California, in this March 31, 2006 file photo. REUTERS/Kimberly White/Files

A Buddha shrine sits at the entrance of Lululemon Athletic, a yoga clothing store, as a woman shops with her dog in San Francisco, California, in this March 31, 2006 file photo.

Credit: Reuters/Kimberly White/Files

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(Reuters) - Rising competition and heavy discounting at Lululemon Athletica Inc LLL.TO prompted an influential analyst to cut his rating on the yoga wear retailer's stock on Friday, sending its shares down more than 5 percent.

Credit Suisse analyst Christian Buss downgraded Lululemon to "neutral" from "outperform," also citing slowing sales growth at established stores in Canada, the company's home market.

"We see long-term risks to its competitive positioning and pricing power as active wear gains shelf space across retail channels," he wrote, singling out premium department stores as a particular threat.

Buss cut his target price to $80 from $86.

Lululemon, closely watched by investors because of its meteoric rise, now faces a growing number of competitors offering similar products, often at lower prices.

In Canada, Lululemon's home market, the retailer is facing the challenge of generating more sales in older stores that are already very productive, Buss wrote.

In the fourth quarter of 2011, established stores in Canada were posting sales growth in the low teens, in percentage terms, the company said during a conference call soon after it released its quarterly results. For the third quarter of 2012, that figure was in the low single digits. The company does not break out precise figures.

Buss also said discounts have spiked online and in stores: "New and winter product lines appear to have stretched outside of the company's comfort zone, with re-pricing actions, broader discounting, and higher mark down levels than we have historically seen."

Lululemon's Nasdaq-listed shares fell 5.7 percent to $70.81 on Friday morning. On the Toronto Stock Exchange, the stock fell 6.0 percent to C$69.77.

(Reporting by Allison Martell; Editing by Frank McGurty and Nick Zieminski)

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