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On Friday, UBS analysts revised their outlook for Lululemon Athletica Inc. (NASDAQ:LULU), reducing the price target to $290 from $330 while maintaining a Neutral rating. According to InvestingPro data, the company maintains a "GREAT" financial health score, with impressive gross margins of 59.2%. The adjustment follows the company’s recent report for the first quarter of fiscal year 2025, highlighting several key datapoints.
Lululemon’s management noted that U.S. total sales for the second quarter to date are consistent with the first quarter’s performance, despite new product launches like Align (NASDAQ:ALGN) No Line. The company’s China Mainland sales rose by 21% year-over-year in the first quarter, with expectations for growth to accelerate to between 25% and 30% for the fiscal year. This growth potential contributes to the company’s strong revenue CAGR of 22% over the past five years.
The report also indicated that Lululemon anticipates experiencing gross margin pressure of 10 to 20 basis points for fiscal year 2025 due to increased markdowns, a response to weaker foot traffic in its U.S. stores. Additionally, tariffs are expected to create a 60 basis point headwind in the second quarter and a 40 basis point impact for the fiscal year.
To mitigate the effects of tariffs, Lululemon plans to implement price increases on a small portion of its product assortment. This strategy is part of the company’s broader efforts to manage the financial impact of tariffs on its operations.
In other recent news, Lululemon Athletica Inc. has been the subject of multiple analyst reports following its latest earnings announcement. The company reported first-quarter earnings per share (EPS) of $2.60, which exceeded the guidance range of $2.53 to $2.58, alongside revenue of $2.371 billion, surpassing broader market estimates. Despite this, Lululemon lowered its full-year EPS forecast to a range of $14.58 to $14.78 due to anticipated tariff impacts and a more promotional market environment. Analysts from BTIG, Needham, BofA Securities, Stifel, and BMO Capital all adjusted their price targets for Lululemon, citing concerns over tariffs and a slowdown in international markets.
BTIG and Needham maintained a Buy rating, with BTIG lowering the price target to $405 and Needham to $317. BofA Securities also retained a Buy rating but adjusted the price target to $370, while Stifel’s new target is $324, reflecting challenges in international growth. BMO Capital, on the other hand, reduced its price target to $250 and maintained a Market Perform rating, pointing to concerns about Lululemon’s domestic revenue potential. Despite the lowered guidance, analysts remain optimistic about Lululemon’s product performance and market share opportunities. The company plans to address these challenges by focusing on new product launches and strategic pricing adjustments.
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