Investing.com -- BTIG downgraded Lululemon Athletica to Neutral from Buy in a note on Friday, citing deteriorating sales trends, reduced earnings visibility, and uncertainty ahead of a leadership transition, analyst Janine Stichter said.

The downgrade follows a first-quarter earnings report that BTIG described as having a mixed complexion.

Lululemon reported Q1 EPS of $1.69, marginally ahead of consensus, with sales of $2.5 billion growing 4% as reported.

However, a deceleration late in the quarter has extended into the second quarter, with management guiding Q2 revenue down 2%-3% against consensus expectations of growth of 2.8%, marking the first quarterly sales decline since the COVID-19 pandemic.

North America is planned down low double digits in the second quarter, a sharp deterioration from the 4% decline in Q2 of the prior year. Full-year EPS guidance was cut to $10.95-$11.15 from $12.10-$12.30.

BTIG does not believe the underlying causes of Lululemon's challenges have been fully identified.

"We do not believe the root of the challenges has been fully diagnosed, and see the company as being in a holding pattern as we await the arrival of incoming CEO Heidi O'Neill in September," Stichter wrote.

Areas of uncertainty flagged by BTIG include the source of product underperformance, softer trends in China and international markets, and whether a planned 50-100 basis point increase in marketing spend will be sufficient to reverse traffic declines.

"We see potential for trends to deteriorate further before improving," Stichter added. “While we acknowledge significant self-help opportunity and a relatively inexpensive valuation, we see reduced visibility into estimates and remain more comfortable on the sidelines.”