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Investing.com - Telsey Advisory Group downgraded Lululemon Athletica Inc. (NASDAQ:LULU) from Outperform to Market Perform on Friday, while significantly reducing its price target from $360.00 to $200.00. The stock, which has declined over 41% in the past six months, is currently showing signs of being undervalued according to InvestingPro Fair Value analysis.
The downgrade follows Lululemon’s sales miss for the quarter and a moderated earnings outlook for the year, partly attributed to incremental tariff headwinds, according to Telsey. Despite maintaining impressive gross profit margins of 59.1% and a healthy current ratio of 2.27, twelve analysts have recently revised their earnings estimates downward, as revealed by InvestingPro data.
The firm cited Lululemon’s challenged U.S. performance in a declining activewear market with increased competition, noting that customers have not responded as anticipated to the company’s updated seasonal colors in core styles.
Telsey highlighted that Lululemon now believes product life cycles have become too elongated in core categories such as lounge and social, with management aiming to increase new styles from 23% to 35% of the assortment by next spring.
Despite Lululemon’s efforts to improve its product initiatives, Telsey expects a meaningful impact won’t materialize until 2026, prompting the downgrade due to the elongated timeline for U.S. assortment execution, a challenging activewear market, potential slowing in China, increased competition, and ongoing macro and tariff uncertainties.
In other recent news, Lululemon Athletica Inc. faced a series of analyst downgrades and price target reductions following its second-quarter results. UBS lowered its price target for Lululemon to $185, maintaining a Neutral rating, due to disappointing trends and a need for the company to revamp its operating model. Evercore ISI also downgraded Lululemon from Outperform to In Line, with a new price target of $180, citing slowing growth and tariff concerns. Goldman Sachs adjusted its price target to $200, reflecting a weak outlook and revised FY25 expectations amid softening consumer demand in key markets like the US, Canada, and China.
William Blair downgraded the stock from Outperform to Market Perform, expressing concerns over U.S. sales recovery and the tariff impacts, especially with emerging economic challenges in China. Stifel also downgraded Lululemon to Hold, reducing its price target to $205 due to domestic pressures and the removal of the de minimis exemption, which has affected the company’s FY25 guidance. These developments highlight the challenges Lululemon faces in maintaining its growth trajectory amidst changing market conditions and economic pressures.
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