Jefferies cuts Lululemon stock price target amid weak US trends

Jefferies lowered its price target on Lululemon to $200 from $220, maintaining an Underperform rating, citing weak trends in the Americas with only 3% revenue growth and a 2% decline in comparable sales. The analysts expressed concerns about relying on growth in China and noted macroeconomic uncertainties, while InvestingPro data points to rising inventory and SG&A costs as threats to future EPS. Despite exceeding Q1 sales and EPS expectations, Lululemon adjusted its EPS forecast downward due to tariff impacts and consumer caution, leading other firms like Piper Sandler and Goldman Sachs to also lower their price targets.

Analysis

Jefferies has revised its price target for Lululemon Athletica Inc. (LULU) downwards to $200 from $220, reiterating an Underperform rating. This decision stems from Lululemon's mixed first-quarter results, which revealed modest 3% revenue growth in the Americas and a 2% year-over-year contraction in comparable sales, alongside concerns about weak U.S. trends, slowing mall traffic, and the limited efficacy of relying on Chinese market growth amidst macroeconomic uncertainties. Despite these challenges and an analyst target range of $194 to $500, Lululemon maintains impressive gross margins of 59.22% and, according to InvestingPro, a healthy current ratio of 2.16 with 10.07% revenue growth over the last twelve months. However, InvestingPro also highlights rising inventory levels and increased SG&A costs as potential headwinds for 2025 earnings per share. Lululemon did narrowly surpass Q1 sales and EPS expectations but subsequently lowered its EPS forecast due to tariff impacts and consumer caution, even while maintaining its annual sales guidance. This cautious outlook is shared by Piper Sandler and Goldman Sachs, who reduced their price targets to $270 and $285 respectively, citing sales trends and international performance, particularly in China. Conversely, TD Cowen raised its target to $373, optimistic about earnings potential and strategic pricing. Lululemon's plan to increase prices on select items to counter tariffs has raised questions about U.S. market maturity. Raymond James maintained a Market Perform rating, projecting a 7% Q1 revenue increase but noting macroeconomic and tariff pressures. Potential upside exists with new product lines like Align No Line, Daydrift, and Glow Up expected to gain traction in the second half of the year.

Key Decisions for Investors

• Investors should closely monitor Lululemon's U.S. sales trends, comparable store sales figures, and inventory management in upcoming quarters, given the concerns raised by Jefferies and other analysts regarding slowing domestic growth.
• Consider the significant divergence in analyst price targets (ranging from $194 to $500) and ratings, reflecting substantial uncertainty regarding Lululemon's ability to navigate tariff impacts, macroeconomic pressures, and sustain growth, particularly in the U.S. and China.
• Evaluate the potential impact of planned price increases on consumer demand and brand perception, especially in the U.S. market, while also tracking the market acceptance and sales contribution of new product franchises like Align No Line, Daydrift, and Glow Up for indications of future growth drivers.