Share prices of Lululemon Athletica inc. (NASDAQ:LULU) have certainly had their ups and downs over the last month or so, but they have yet to recover to where they were in January. Some investors think the worst is behind the company, but Sterne Agee analysts think it’s too early to say this. They have reiterated some of their comments from earlier this week but now also cut their estimates.

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Positive sentiment on Lululemon Athletica looks premature

In a research note dated March 28, 2014, analysts Sam Poser and Ben Shamsian say the gap between Lululemon Athletica inc. (NASDAQ:LULU) and its competitors is still shrinking. They believe the company’s customer service and “in-store service levels” must improve before same store sales will return to previous levels.

Lululemon Athletica inc. (NASDAQ:LULU)’s guidance same store sales for the 2014 fiscal year assumes that they will accelerate in the second half of this year. However, the Sterne Agee team isn’t sure that this will happen. As a result, they have lowered their fiscal 2014 earnings per share estimate from $2.01 to $1.75 per share. Their 2015 estimate moves from $2.22 to $1.97 a share.

They believe the PE multiple of about 29 times the high end of Lululemon Athletica inc. (NASDAQ:LULU)’s 2014 fiscal guidance is too generous. Although they believe the company’s improvements in products and its supply chain will work, they don’t think those improvements “will be enough to sustain such a large multiple.”

Lululemon Athletica still haunted by 2013

The Sterne Agee team believes Lululemon Athletica inc. (NASDAQ:LULU) will keep having problems attracting new customers because of what happened in 2013, plus “a modest deterioration” of the in-store experience. The analysts said the brand’s potential customers are beginning to find “a better price value relationships” from competitors like Nike Inc (NYSE:NKE), Under Armour Inc (NYSE:UA) and others. They note that many competing brands have better loyalty incentives. While Lululemon offers a 15% discount, Athleta’s discount is 30%, and UnderArmour sells wardrobes through contests on Instagram.

They also believe that while Lululemon Athletica inc. (NASDAQ:LULU)’s seasonable products have been performing well, they think “only the most core” customers have been buying them. They note that the company doesn’t have any kind of customer relationship measurement or tracking system in place, so it doesn’t really know who is buying its products.

Management’s comments not specific

The analysts were also unhappy with management’s remarks on the earnings call, saying that while they did provide some color in terms of improvements in the product and operational issues, there were no specifics. In addition, management didn’t talk much about the in0store experience. The Sterne Agee team wonders if Lululemon Athletica inc. (NASDAQ:LULU) will “ease its unreasonable return policy” and if it will go back to offering the “superior fitting room service” it did some years ago.