Truist Securities reduced its rating on Lululemon Athletica to “Sell” from “Hold” as the firm believes the yoga-themed retailer’s turnaround will prove more challenging than current price levels show.
Joseph Civello, Truist’s lead analyst in the space, also trimmed his price target on Lululemon to $94 from $115 and slashed his EPS estimates on LULU to $10.50 from $11.25 for FY26 and to $10.25 from 11.75 for FY27.
Shares of Lululemon closed Thursday, July 16, at $118.79, down 42.8 percent since starting the year at $207.81 and well off its all-time high of $511.29 reached in December 2023.
In the note issued July 16, Civello still said he believes LULU’s stock in the near- to medium-term is “skewed to the downside” as he believes “current headwinds may prove more structural than what is currently being underwritten by the Street.”
He noted that the stock is only down about 6 percent since Lululemon’s first-quarter report arrived on June 4 and has outperformed the majority of its peers in Truist’s coverage despite management issuing a “very soft outlook” amid its upcoming CEO change and after facing social media uproar in China recently for using a Japanese Taiko Drum for a promotional event at the Great Wall. Civello also cited recent third-party data tracking trends indicating Lululemon is facing “further pressure” in the marketplace.
“In our view, its performance likely signals that investors are looking at headwinds facing LULU as being potentially more cyclical & view the recent multiple degradations as appropriately reflecting current challenges,” said Civello. “We are incrementally cautious that recent headwinds may prove to be more structural (given the traction we are seeing from existing & new challenger brands despite a choppier consumer environment) and believe there are further downside risks ahead.”
Civello cited internal Truist card data showing Lululemon “remains meaningfully pressured” while TikTok and Google Trends continue to show the brand losing mindshare. He also cited Reddit discussions about a promotion to Amex Platinum credit card holders that “signal meaningful brand issues.”
The analyst further called out growth concerns in China, in part due to the recent PR incident, and newer competitors such as Vuori in the region.
Overall, Civello believes Lululemon is increasingly fending off newer competitors as “social media/influencer platforms have made it significantly easier for new entrants to take share.” He cited an article calling out Set Active, 437, Oner Active, and Fleur du Mal as the latest crop of “TikTok-savvy brands.”Finally, Civello said turnarounds in general are “very difficult to execute and (even when they are successful) often come with a lot of unforeseen pain in the near/mid-term,” referencing the stalled recovery efforts at Under Armour, VF Corp. and Nike.
He expects Heidi O’Neill, a former Nike veteran who is taking over as company CEO in September, to likely launch a “proactive shrink-to-grow strategy” while accelerating investments to address Lululemon’s challenges. Civello wrote, “As a result, we believe there is very limited visibility into where/when earnings may bottom and think that a valuation-based Buy thesis likely becomes much harder to defend over the near/mid-term.”
Image courtesy Lululemon
