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On Tuesday, Piper Sandler adjusted its outlook on Lululemon Athletica Inc. (NASDAQ:LULU) by reducing the price target to $280 from the previous $315, while maintaining a Neutral rating on the company's shares. The revision reflects a recalibration of earnings per share (EPS) estimates for fiscal years 2025 and 2026, alongside considerations of the company's sales growth and margin projections. According to InvestingPro data, 19 analysts have recently revised their earnings estimates downward for the upcoming period, while the stock has declined nearly 33% year-to-date.
The investment firm now anticipates Lululemon to achieve a 5% increase in sales for fiscal year 2025, which is at the lower end of the company's own guidance, and a 6% rise for fiscal year 2026. This projection comes despite the company's strong financial health, with InvestingPro analysis showing a robust 10.07% revenue growth in the last twelve months. Earnings before interest and taxes (EBIT) margins are expected to contract by 180 basis points in 2025, more than the 100 basis points decline suggested by the company's guidance, and by 80 basis points in 2026.
The new price target is grounded on an 18 times multiple of the firm's estimated EPS for fiscal year 2025, a decrease from the previously employed 20 times multiple. Currently trading at a P/E ratio of 17.25, Piper Sandler's analysts justify the premium multiple by citing Lululemon's strong brand presence and the attractiveness of the category it operates in. The company maintains impressive gross profit margins of 59.22%, though analysts express concern over the brand's capacity to offset cost pressures through higher pricing, especially given recent product execution challenges and the competitive landscape.Want deeper insights? InvestingPro subscribers have access to over 10 additional exclusive ProTips and comprehensive financial metrics for Lululemon, including detailed margin analysis and peer comparisons.
The analysts also considered the impact of tariffs on Lululemon's gross margins. Based on the latest tariff information, which includes a 10% tariff as disclosed for fiscal year 2024, and with Lululemon's production spread across Vietnam (40%), Cambodia (17%), Indonesia (11%), Sri Lanka (11%), and Bangladesh (7%), Piper Sandler estimates a gross margin decline of 150 basis points before any mitigating actions are taken by the company.
In other recent news, Lululemon Athletica Inc. reported strong fourth-quarter earnings, with normalized EPS reaching $6.14, surpassing the previous year's $5.29 and beating consensus estimates by $0.27. The company's revenue for the quarter also exceeded expectations, coming in at $3.68 billion compared to the anticipated $3.26 billion. Despite these positive results, Bernstein analysts reduced Lululemon's price target from $460 to $405, citing macroeconomic pressures affecting recovery momentum. On the other hand, CFRA upgraded Lululemon's stock rating to Strong Buy, maintaining a price target of $376, highlighting the current decline in share prices as an attractive entry point for investors.
In contrast, Argus analysts downgraded Lululemon from Buy to Hold due to growth concerns stemming from an aging product line and increased competition. Truist Securities also lowered its price target to $297 while maintaining a Buy rating, acknowledging the challenges posed by tariffs but recognizing Lululemon's strong brand momentum. TD Cowen affirmed a Buy rating with a $445 price target, noting Lululemon's record-high gross margin in the fourth quarter and potential for top-line growth acceleration. These developments reflect a mixed outlook on Lululemon, with analysts weighing the company's strong financial performance against broader economic uncertainties and competitive pressures.
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