Wells Fargo has cut its price target on Lululemon Athletica, Inc. to $225 from $270 and its earnings estimates for the current and next year, suggesting another guidance reduction may be likely for the athletic apparel retailer, citing continued operational and market challenges.
Shares of LULU on Monday, August 4, closed at $196.45, down $3.12, or 1.6 percent. The stock started at $382.41.
“We believe the LULU story remains in a tough spot,” wrote Ike Boruchow, lead analyst for Wells Fargo in the retail, softlines and e-commerce sector, in a note.
Boruchow maintained his “Equal Weight” rating on LULU due to three key concerns:
- a lack of U.S. same-store sales visibility;
- uncertainty around China’s growth trajectory; and
- margin headwinds in the second half tied to markdown pressures and tariffs.
Boruchow noted that while it’s possible Lululemon in the second quarter delivers some sequential same-store sales improvement in North America versus the first quarter, it will likely be “largely driven by accelerated clearance activity exiting the quarter.”
Boruchow expects North America comps to be down about 1 percent in the second quarter, with U.S. comps down in the low-single-digits. Boruchow also reduced his expectations for North American comps for the third quarter to a 0.5 percent gain, down from a previously positive 2 percent, and for the fourth quarter to a 1 percent gain, down from a previously positive 2.5 percent.
In the first quarter, Lululemon reported same-store sales in the America region declined 2 percent (negative 1 percent on a currency-neutral basis) after reporting fourth-quarter comps in the region were flat, down 1 percent on a currency-neutral basis.
For China, Boruchow noted that following a significant slowdown in the first quarter (up 8 percent on a currency-neutral basis in the first quarter versus positive 27 percent in the fourth quarter), “checks in China have begun to worsen (as has the macro).” Wells Fargo lowered its comp expectations on China for the third quarter to 12 percent (15 percent previously) and for the fourth quarter to 10 percent (15 percent previously.).
Regarding risks related to inventory and tariffs, Boruchow noted that clearance activity at Lululemon “has picked up meaningfully in July,” suggesting continued execution issues. He wrote, “The lack of improvement in full-price US trend makes us think markdowns could remain problematic in 2H.”
He also said tariffs, particularly those now facing Vietnam, should add incremental margin pressure for LULU in the back half. Wells Fargo estimates that an annualized unmitigated headwind of 50 to 100 basis points is possible. Between tariffs and pricing, Wells Fargo lowered its estimate for margins in the third and fourth quarters by 25 basis points.
Overall, Wells Fargo reduced its estimate for LULU to earn $14.60 this year from $14.90 previously, moving to the low end of Lululemon’s guidance in the range of $14.58 and $14.78. For 2026, the investment firm lowered its EPS estimate to $14.90, well below Wall Street’s consensus estimate of $15.52.
Image courtesy Lululemon Athletica, Inc.
