What the bad jobs report means for markets
On Friday, Bernstein analysts adjusted their outlook on Lululemon Athletica Inc. (NASDAQ:LULU), reducing the price target from $460.00 to $405.00 while maintaining an Outperform rating. The revision reflects concerns over macroeconomic pressures that are dampening the company’s recovery momentum. According to InvestingPro data, analyst targets for LULU range from $194 to $500, with the company currently trading at $293.41. InvestingPro’s Fair Value analysis suggests the stock is currently undervalued.
Lululemon, a leading North American sports apparel company with impressive gross profit margins of 58.85%, has experienced a decline in customer traffic in the first quarter, attributed to a worsening sentiment in the United States during February and March. This downturn has undermined the positive effects of new product launches, as negative year-over-year traffic to stores and the website has offset gains in average order value and basket size noted by management in response to the new assortment. Despite these challenges, the company maintains strong financial health, earning a "GREAT" rating from InvestingPro’s comprehensive analysis system.
The analysts at Bernstein remain positive about Lululemon’s recovery story but acknowledge that macroeconomic uncertainty is weighing on estimates and the stock’s valuation multiple. Despite a strong fourth quarter, with revenue growth of 10.84% over the last twelve months, the company’s fiscal year 2025 guidance appears weak due to a combination of slow quarter-to-date traffic trends and management’s cautious stance. The company maintains healthy financials with a current ratio of 2.0 and operates with moderate debt levels.
Two months earlier, the outlook for Lululemon was more optimistic, with a bullish high-income consumer base and no significant macroeconomic headwinds. However, current quarter-to-date weakness and ongoing uncertainty in the U.S. market, which accounts for 60% of Lululemon’s sales, have led to a downward revision of earnings per share estimates to $15.74 from $16.00 and a lower valuation multiple of 23 times FY2, down from 26 times previously. InvestingPro analysis reveals the company’s P/E ratio stands at 20.9x, with a notably low PEG ratio of 0.31, suggesting potential value relative to growth prospects.
Bernstein’s analysts suggest that Lululemon’s future performance and stock potential largely hinge on U.S. consumer sentiment and behavior in the upcoming months. Despite the revised price target and earnings estimates, the firm’s Outperform rating indicates a belief in the company’s ability to navigate through these challenging conditions.
In other recent news, Lululemon Athletica Inc. reported fourth-quarter results that exceeded expectations, with a notable 13% year-over-year increase in revenue and a diluted earnings per share (EPS) of $6.14. The company’s financial guidance for the fiscal year indicates a revenue increase of 6% to 7%, with an EPS range of $14.95 to $15.15. However, this guidance has prompted varied reactions from analysts. TD Cowen maintained a Buy rating with a $445 price target, citing confidence in Lululemon’s potential for top-line growth and inventory management. In contrast, BMO Capital Markets lowered its price target to $302, expressing concerns over Lululemon’s long-term growth prospects in the domestic market. Truist Securities also reduced its price target to $380 while maintaining a Buy rating, noting the company’s challenges in sustaining sales momentum in the U.S. Piper Sandler adjusted its price target to $315, highlighting macroeconomic factors and product maturity concerns. Meanwhile, KeyBanc Capital Markets reduced its price target to $400 but retained an Overweight rating, indicating optimism about Lululemon’s strategic initiatives and product innovations. These recent developments reflect a mix of optimism and caution among analysts regarding Lululemon’s future performance.
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