Analysts are skeptical that Lululemon’s comps in the U.S. will inflect back to growth in the second quarter and believe management will reduce EPS guidance for the year due to higher tariffs and possibly markdown pressures when the company reports earnings results on Thursday, September 4.

For the second quarter, Lululemon’s guidance calls for revenue in the range of $2.54 billion to $2.56 billion, representing growth of roughly 7 percent to 8 percent. EPS was guided in the range of $2.85 to $2.90 for the quarter, down from $3.15 a year ago.

Analysts, on average, expect Lululemon to reach the low end of its forecasts. Analysts’ consensus target for sales is $2.54 billion, representing a 7 percent growth. The consensus EPS is $2.87.

EPS guidance for the year is expected by many analysts to come down largely because tariffs have risen in key countries from which Lululemon sources, since the company reported first-quarter results in early June. However, analysts said investors are especially interested in whether Lululemon can revive growth in the U.S.

Lululemon reported that its Americas same-store sales decreased 2 percent, or 1 percent on a constant dollar basis, in the first quarter, as declines in the U.S. offset gains in Canada.

Shares of Lululemon closed Friday, August 29, at $202.20, down 47.1 percent since the start of the year at $382.41 and down about 60 percent from an all-time high of $516.39 reached in December 2023.

Morgan Stanley, in an August 26 note, kept its “Equal-Weight” rating on Lululemon but slashed its price target to $223 from $280. Analyst Alex Straton also lowered her guidance for the second quarter to $2.80 from $2.93 previously and trimmed her estimates for the third and fourth quarters.

Straton sees the potential for a second-quarter shortfall, including the Americas’ comp coming in similar to the 1 percent decline seen in the first quarter or worse. She suspects Lululemon may guide Q3 EPS below consensus targets and trim FY EPS guidance due to tariffs.

Straton noted that Morgan Stanley downgraded Lululemon on June 9 from “Overweight” due to waning confidence in a recovery in the company’s core U.S. market. She also expressed concern that even if Lululemon beats earnings expectations, investors are unlikely to reward the stock until North American sales show consistent improvement. Other factors contributing to the downgrade included “fair-to-high” consensus forecasts through 2028, which are likely to be revised downward, and the stock still trading at a premium to its peers.

In Straton’s new note, she said the tenets behind the rating downgrade remain unchanged.

On valuation, she said the while Lululemon’s stock’s devaluation to 14 times forward P/E multiple “feels overly punitive for a business that could still enjoy points of above-peer growth & touts a best-in-class margin profile,” a re-rating is unlikely as an American comp inflection “doesn’t feel imminent” and EPS targets for the full year likely need to be come down. Straton added, “In fact, we wonder if LULU valuation is permanently relegated to the Specialty Apparel Retail range even should an Americas inflection eventually come into view (i.e., [about] low-mid-teens forward P/E on avg.), as longer-term concerns around the stock would still be far from resolved (i.e., intensifying competitive landscape, potential home market saturation, int’l opportunity, markdown/marketing/SG&A deleverage risk, etc.).”

Bank of America Securities, in a note dated August 26, reiterated its “Buy” rating while reducing its price target to $300 from $370.

Analyst Lorraine Hutchinson expects Lululemon to post earnings of $2.89, towards the upper end of Lululemon’s guidance range. She believes that if Lululemon can meet its projections in delivering Q2 sales growth in the range of 7 percent to 8 percent and reiterate a similar range for the second half, the stock will re-rate.

“We think the stock’s selloff presents a particularly good opportunity to own a strong growth company with high margins; we retain our Buy,” Hutchinson wrote in a note.

Hutchinson still believes investors are frustrated with mixed messaging from Lululemon’s management on why the North American business has stalled. She wrote, “We need to hear incremental data points that the new product is working and will be big enough to turn the NA comp trend positive in 2H. 1Q’s international deceleration across all markets was disappointing, and any proof points that China and ROW have stabilized would be well received.”

She believes that although tariffs are adding margin pressures, Lululemon “remains relatively well positioned versus other brands given its premium brand positioning and ability to mitigate through modest price increases.” She also noted that while her team hears investors’ concerns about discounting, Q1 exceeded plans on markdowns, and Lululemon management had already guided for a” small uptick” in margin impact from markdown pressures for the full year.

Hutchinson lowered her stock price target on Lululemon to align with ratings on her other growth stocks in her coverage and to reflect “tougher” macroeconomic conditions.

Citi Research, in a note dated August 26, maintained its “Neutral” rating on Lululemon and downwardly adjusted its price target to $220 from $270.

Analyst Paul Lejuez expects a “modest 2Q EPS beat” with Citi’s estimate for the quarter at $2.91. He also expects Lululemon’s management to maintain its F25 sales guidance of a gain of 5 percent to 7 percent. However, he expects Lululemon’s management to guide to an incremental 20 basis points tariff headwind this year and consequently lower its EPS guidance for the year from $14.58 to $14.78, to $14.43-$14.63 (versus consensus $14.42), driven by higher tariffs. He also believes Lululemon will indicate that tariff pressures will continue through next year.

Citi reduced its EPS estimate for the current year and 2026 and adjusted its price target in line with the estimate cuts.

Lejuez believes the current stock price already incorporates expectations for a further cut in EPS guidance and a decline in Americas’ same-store sales similar to the first quarter. He also notes that more bearish investors expect that higher-than-planned promotions in the second quarter may lead to lower gross margin guidance for the year.

Lejuez wrote, “While the magnitude of the promos vs guidance (whether they were more than plan) is uncertain, we believe the larger issue of weak traffic trends, coupled with a lackluster assortment (in our view) vs competitors, suggests that traffic and markdown pressure will continue. And we have not received any signals from management that they plan to drastically change their strategy.”

BTIG, in an August 27 note, lowered its price target on Lululemon to $375 from $405 while keeping its “Buy” rating.

Analyst Janine Stichter expects Lululemon’s earnings to come in at $2.90, at the upper end of guidance. She expects revenue to grow 7.8 percent year-over-year, at the higher end of guidance. The analyst modestly reduced her full year estimates due to expectations of lower U.S. growth and higher tariffs, and her price targets were adjusted accordingly.

“While there is potential for the full year to be revised downward on higher tariffs and sluggish U.S. performance, we note many estimates are already below guidance, and believe this is reflected in the stock,” said Stichter.

She said that while the U.S. has returned to net growth over the last two quarters, the increases have remained in the low single digits, “despite the levels of newness returning to historical levels.”  Her checks reveal a “mixed” finding on Lululemon’s performance, with in-store traffic improving slightly but remaining down year-over-year, web traffic improving, China showing an acceleration from Q1, and credit card spending showing a slight decline.

With the weakness, she noted that Lululemon’s stock multiple has fallen 60 percent below its peak levels and now ranks at the bottom of its peer group. In reiterating her “Buy” rating, she wrote, “Multiples suggest LULU has hit maturity, layered with ongoing concerns around competitive threats and the unwinding leggings trend, which we believe is discounting remaining growth opportunities in the U.S. from improved execution, gains in the men’s business, and continued international expansion.”

Stifel in a September 1 note reiterated its “Buy” rating at a price target of $324.

Analyst Peter McGoldrick is expecting LULU to report earnings of $2.89 on sales of $2.55 billion, at the upper end of Lululemon’s guidance. He sees a favorable product cycle driving an Americas comp inflection upon the rollout of new and trend-right products. McGoldrick said, “We are optimistic that positive guest response to new products (Align No Line, Daydrift) influences positive inflection in Americas comp 3Q25, when the franchises are fully available in September.”

Stifel expects sales in the Americas region in the second quarter to grow 2 percent, supported by a 1 percent combined comp gain.

In Mainland China, Stifel expects sales to grow 27 percent year-over-year with combined comps up 14 percent. McGoldrick wrote, “Our most recent China expert call suggested that in May LULU’s social media mentions saw a material sequential increase vs April and that LULU’s foot traffic in its Shanghai stores was robust.”

McGoldrick expects a net margin impact of 15 to 20 cents due to tariffs to full-year guidance but said this appears priced into the current stock valuation. McGoldrick said, “Big picture, we believe the athleisure space to be a secular growth market, for which LULU’s leadership position, long runway for international growth, profitable model, and strong capitalization are underappreciated in current valuation.”

 

Image courtesy Lululemon