Lululemon Drops After FBR Cuts Rating, Citing Heavy Discounting

VANCOUVER, Canada — Lululemon Athletica Inc. tumbled as much as 7 percent after FBR & Co. downgraded the stock, saying the yogawear brand is facing a pileup in inventory and heavier discounting.

FBR analyst Susan Anderson lowered her recommendation to “underperform,” the equivalent of sell, from a market-perform rating. Elevated inventory is expected to put pressure on profit margins through 2016, she said in a report on Monday. Lululemon is relying more heavily on price cuts to get products out the door, said Anderson, who reduced her target on the stock to $42 from $55.

“Our checks have shown significantly higher clearance levels in-store and online over the past few weeks,” she said.

The stock decline followed a rally over the past two weeks, fueled partly by speculation that Lululemon could be a takeover target. Nike Inc. and Under Armour Inc. have been cited as potential bidders, but those companies are making their own into forays into Lululemon’s turf of yoga clothing and other women’s athletic wear. That’s led to an increasingly crowded market.

Lululemon fell as much as $3.70 to $48.80 in New York on Monday, the biggest intraday decline in more than two weeks. Shares of the Vancouver-based company were already down 5.9 percent this year before the latest drop.

By Nick Turner; editor: Kevin Orland.