Adidas and Puma shares defy Lululemon disappointment

Looming high share losses at competitor Lululemon did not affect Adidas and Puma on Friday.

While Adidas shares ended up 0.8 percent higher after a subdued start, Puma's share price was moderately above breakeven, at 0.4 percent. Meanwhile, Lululemon's share price was heading for a 17 percent slump in pre-market US trading due to a disappointing quarterly report.

Lululemon disappoints again

According to one trader, this is the third quarter in a row that the sportswear group, known primarily for its yoga apparel, has disappointed investors. The market analyst expressed his belief this morning that much of the issue is internal to the company. This could explain Adidas's positive share price development. However, shares of US competitor Nike were also trading slightly lower pre-market.

Lululemon lowered its outlook. It is struggling to meet high expectations and offset customs costs amid weak consumer sentiment. Matthew Boss of JPMorgan noted that on a like-for-like (LFL) basis, second quarter revenue growth was much smaller than expected. The earnings per share outlook for the current third quarter is almost 25 percent below the analyst consensus.

Weak domestic market

Randal Konik of Jefferies believes the targets are still not low enough. He emphasised that his estimates are significantly below the analyst average. The US market, Lululemon's driving force, is weakening rapidly. Gross margins are peaking, inventories remain too high, and tariffs pose a problem.

According to analyst Jay Sole of UBS, Lululemon's business trend is much worse than previously thought. He does not see the share price decline as a buying opportunity. Earnings per share expectations are subject to significant downside risk. "Business model revisions are time-consuming," Sole said. If mistakes are made in the process, the consensus is likely to fall further in the foreseeable future.

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