LVLU - Lulu's Fashion Outlet stock crashes after key downgrade

Lulu’s Fashion Outlet Holdings ( NASDAQ: LVLU ) was among the steepest decliners in the market on Friday after a downgrade from Piper Sandler.

Shares of the Chico, California-based online retailer fell over 30% at the intraday low, adding to significant declines since June. Indeed, shares peaked at $21.29 in early June, only about a month and a half prior to touching Friday’s low of $6.78.

The outsized move in shares follows a downgrade posted by former bull Piper Sandler before the day’s market open. While the firm remained largely positive on the company, citing positives such as consumer loyalty and a strong management team, the concern of a consumer spending slowdown motivated a shift in sentiment on the name.

“The consumer is being squeezed by increased gas and food prices, which is causing pullback in spending on other categories,” the research explained. “Although we think LVLU is positioned well within our WOT framework, we believe growth deceleration could occur given the unfavorable consumer backdrop.”

The note went on to explain that a drop in demand could create an inventory issue that would then cycle through to margin pressures and create an unhappy cycle for the retailer. Outside of these fashion and execution issues, competition was cited as a key concern.

“Digitally native peers including Shein, Princess Polly, Revolve ( RVLV ), and PrettyLittleThing outperform Lulus on Google Trends and Earned Media Value despite Lulus having a larger customer count than both Revolve and Princess Polly,” the research pointed out. “Shein and Princess Polly also greatly outperformed Lulus in our Spring 2022 Taking Stock with Teens Survey. If these retailers continue to gain share, we think it could limit Lulus’ growth as the online female Gen Z/Millennial retail space becomes more competitive.”

Taken altogether, the team of analysts advised moving to the sidelines. The team assigned a $14 price target to the stock alongside the downgrade to “Neutral”. Read more of the team’s overall outlook on retail .

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