Lulu draws downgrade from Citi: There's 'less room for disappointment'

Key Points
  • Citi downgrades shares of Lululemon to neutral from buy, saying the swell in market expectations has erased upside opportunity for investors.
  • Improved performance has "raised expectations, making it tougher to impress the market in the fourth quarter," wrote analyst Paul Lejuez.
  • To be sure, Lejuez was bullish on Lululemon less than three months ago, when he upgrade his rating to buy.
A customer looks at sports bras inside a Lululemon Athletica store.
Xaume Olleros | Bloomberg | Getty Images

Lululemon expectations have improved so much that the upside opportunity has evaporated for investors, according to Citigroup.

Despite solid holiday performance and "product newness" driving sales at the athletic apparel retailer, Citi analyst Paul Lejuez downgraded shares of Lululemon to neutral Tuesday.

"We believe expectations are now elevated for a strong fourth quarter and continued momentum into fiscal year 2018, creating less room for disappointment" Lejuez wrote in a note to clients Tuesday. "Although Lululemon is one of the more attractive square footage growth stories in softlines retail, we believe expectations are high and the risk reward is balanced."

Despite the call, the stock closed 1.4 percent higher on Tuesday, to $79.69 a share.