TD Cowen lowers Lululemon stock price target to $321 amid EPS cut

TD Cowen lowered its price target on Lululemon (LULU) to $321 from $373, maintaining a Buy rating, after the company's recent earnings guidance cut led to a 20% stock decline. Despite the reduced EPS guidance for fiscal years 2025 and 2026, analysts cite Lululemon's strong fundamentals, including a "GREAT" financial health score, 59% gross profit margins, and robust revenue growth, while acknowledging tariff impacts and a potentially slowing international business. Other firms like Truist, UBS, BTIG, Needham, and BofA Securities also lowered their price targets, though some maintain a Buy rating based on Lululemon's strong Q1 performance and China sales growth, despite a more promotional market environment.

Analysis

TD Cowen has revised its price target for Lululemon Athletica Inc. (LULU) downwards to $321 from $373, while reiterating a Buy rating, following the company's recent reduction in earnings guidance which precipitated a 20% decline in its stock price. Despite this guidance cut, attributed to tariff impacts and a challenging macroeconomic environment, Lululemon demonstrates strong financial health, evidenced by a 59% gross profit margin and 10% revenue growth over the last twelve months. The current stock valuation, at 16 times estimated fiscal year 2026 EPS and 9 times EV/EBITDA, is noted as comparable to its August 2024 lows, with InvestingPro suggesting the stock trades below its Fair Value. TD Cowen's new price target implies a valuation of 20 times FY2026 estimated EPS and 11 times EV/EBITDA. Other analyst firms, including Truist Securities, UBS, BTIG, Needham, and BofA Securities, have also lowered their price targets due to concerns over a weaker Q2 forecast, revised full-year guidance, tariff pressures, and increased markdowns. However, Lululemon's Q1 EPS of $2.60 surpassed expectations, and management maintained its fiscal 2025 sales guidance. A significant positive is the 21% year-over-year sales increase in China Mainland during Q1, with expectations of continued growth. The company is actively planning to mitigate tariff impacts through strategic pricing and sourcing efficiencies, although TD Cowen revised its FY2025 EPS estimate down to $14.77 and FY2026 to $16.05, slightly below consensus, citing potential slowdowns in international operations.

Key Decisions for Investors

• Investors might consider the recent 20% stock price decline as a potential buying opportunity, given Lululemon's persistent Buy rating from TD Cowen, strong underlying fundamentals such as 59% gross profit margins, and a valuation near historical lows.
• It is crucial to monitor the company's progress in mitigating tariff impacts, the trajectory of its international sales growth, particularly in China, and any further revisions to earnings guidance amidst the prevailing macroeconomic headwinds and promotional retail environment.
• Despite multiple price target reductions from analysts, Lululemon's better-than-expected Q1 EPS and maintained FY25 sales guidance suggest resilience; therefore, existing shareholders may consider holding their positions, while prospective investors could evaluate entry points carefully, balancing near-term pressures with long-term growth prospects.