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Investing.com -- Lululemon Athletica was downgraded to Neutral following signs of weakening U.S. revenue trends and a delay in product-driven growth catalysts, with JPM flagging both macro and assortment headwinds.
Shares of the company were down 1% at $220 in premarket trading.
The downgrade comes after field checks and management conversations revealed that Lululemon’s U.S. revenue growth is slowing, with Q2 sales now expected to rise just 1.2% year-on-year, a step down from 1.7% growth in Q1 and implying a -260 basis point deceleration on a two-year stacked basis.
Analysts pointed to lackluster consumer response to updated core-seasonal colors, which make up roughly 40% of Lululemon’s inventory, while only about 20% of newer product innovations like Align (NASDAQ:ALGN) No Line and Be Calm lines were driving meaningful sell-through.
The remainder of the assortment, including evergreen core styles, faced conversion headwinds, despite being less exposed to fashion risk.
The report also noted that expectations for a U.S. sales reacceleration in early 2025 have now shifted to the second half of the year.
Lululemon (NASDAQ:LULU) plans to expand its new Align No Line leggings to all stores by September and use air freight to speed up inventory flow, measures aimed at boosting second-half performance.
Beyond product issues, macroeconomic pressure remains a drag. Management recently cited a “more cautious, discerning consumer” in the U.S., and acknowledged store traffic had declined sequentially in Q1.
The U.S. premium activewear market is forecast to grow just 1.0% in 2025-26, down sharply from double-digit rates between FY21 and FY24, according to Euromonitor data.
The combined impact of product and traffic-related weakness raises concerns around Lululemon’s ability to meet its FY26 growth targets outlined for its upcoming Analyst Day, the note said.