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Investing.com - William Blair downgraded Lululemon Athletica Inc. (NASDAQ:LULU) from Outperform to Market Perform, citing uncertainty about U.S. sales recovery timing and tariff impacts. The stock has fallen over 46% year-to-date, though InvestingPro analysis suggests the company remains undervalued at current levels.
The downgrade reflects concerns about the discontinuation of the de minimis provision, which will have a greater-than-expected tariff impact on the athletic apparel retailer. William Blair also noted emerging signs of macroeconomic challenges in China affecting Lululemon’s fastest-growing market. Despite these challenges, the company maintains impressive gross profit margins of 59.1% and operates with a moderate debt level. Get access to 8 more key insights with InvestingPro.
William Blair now projects Lululemon will effectively lose a year of earnings, with its 2026 EPS estimate of $14.18 falling below its previous 2025 EPS estimate of $14.41. The firm observed the stock trades at an aftermarket enterprise value of just under 7 times its new 2026 estimate.
The research firm indicated U.S. sales trends have shown no improvement to date, with performance worsening throughout the July quarter and apparently continuing into August. Achieving projected numbers depends on improving domestic sales and maintaining 20%-plus growth in China.
William Blair characterized Lululemon as a "2026 show-me story" that hinges on new product launches in spring, with few catalysts expected in the interim period.
In other recent news, Lululemon Athletica Inc. reported its financial results for the second quarter of fiscal year 2025. The company achieved an earnings per share (EPS) of $3.10, surpassing analyst forecasts of $2.87. However, Lululemon’s revenue of $2.53 billion slightly missed expectations, which were set at $2.54 billion. Despite the earnings beat, the company is facing challenges in the domestic market, which have led to a reduction in its fiscal year 2025 guidance. In light of these pressures, Stifel has downgraded Lululemon’s stock from Buy to Hold. The firm also significantly reduced its price target for the company from $324.00 to $205.00. These developments highlight the ongoing challenges Lululemon is navigating in the current economic landscape.
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