Stifel lowers Lululemon stock price target amid international slowdown

Stifel analysts lowered Lululemon's price target to $324 from $353, maintaining a Buy rating, after Lululemon reported a slight beat in Q1 revenue and EPS but lowered its full-year EPS guidance due to tariff impacts, despite reaffirming its revenue guidance. International sales growth decelerated, particularly in Greater China, raising concerns about future performance, while analysts also noted weak sales trends in the United States. Despite headwinds, Stifel remains optimistic about Lululemon's brand value and category creator positioning, focusing on U.S. women's segment growth potential.

Analysis

Lululemon Athletica Inc. (LULU) faces a tempered outlook despite a first-quarter revenue and earnings beat, as Stifel analysts reduced their price target to $324 from $353 while reaffirming a Buy rating. This adjustment primarily reflects a significant deceleration in international sales growth, with Greater China constant currency growth slowing to 8% from 27% in the prior quarter, and Rest of World growth easing to 7% from 17%. Compounding these concerns are weak sales trends reported in the United States. While Lululemon reaffirmed its fiscal year 2025 revenue guidance, it lowered its EPS guidance to $14.58-$14.78, down from the previous $14.95-$15.15, citing anticipated tariff impacts expected to affect the second quarter of 2025; this marks the first such downward EPS guidance revision for the company since 2014. Lululemon reported Q1 revenue of $2.371 billion and earnings per share of $2.60, surpassing both Stifel's and broader market estimates. Financially, the company maintains a strong position, evidenced by a current ratio of 2.16, holding more cash than debt on its balance sheet, and a robust gross margin of 59.22%. However, rising inventory levels and increased selling, general, and administrative expenses present potential margin pressures. Stifel's new price target is based on a 20 times price-to-earnings ratio on the expected calendar year 2026 EPS of $16.20, reflecting continued belief in the brand's value and category creator positioning, particularly in the U.S. women’s segment and international brand opportunities, despite acknowledging the risks in accelerating international sales. Other analyst price targets vary significantly, ranging from $200 (Jefferies) to $350 (KeyBanc), indicating mixed sentiment and underscoring the cautious tone reflected in a moderately negative overall sentiment score for the stock, which currently trades at a P/E ratio of 22.62x.

Key Decisions for Investors

• Investors should closely monitor Lululemon's ability to re-accelerate international sales growth and address weak sales trends in the U.S. market in subsequent quarters.
• Particular attention should be given to the Q2 2025 results for the realized impact of tariffs and increased investments on margins, assessing the effectiveness of management's mitigation strategies against the lowered EPS guidance.
• Given the revised earnings outlook and the wide dispersion in analyst price targets, investors should critically evaluate Lululemon's current valuation (P/E of 22.62x), which InvestingPro suggests is 'slightly undervalued', against the backdrop of decelerating growth and heightened operational risks.
• While Stifel maintains a Buy rating highlighting long-term brand strength, investors should weigh this against the immediate challenges of slowing momentum and increased execution risk, particularly concerning international expansion and U.S. market performance.