Lululemon Athletica Inc.’s turnaround won’t be a quick or easy fix as the athletic wear company cedes market share to rivals and suffers deepening sales declines, according to BMO Capital Markets, which initiated coverage of the stock this week with an underperform rating.
Analysts led by Kelly Crago say the Vancouver-based company’s weak quarterly report and reduced full-year outlook revealed a deeply challenged business. Regional performance is deteriorating across the Americas and China as upstart brands like Alo and Vuori grow in favor among younger consumers. Crago’s $70 price target — the second-lowest on the Street, according to data compiled by Bloomberg — assumes a roughly 28% decline from where the shares closed on Thursday.
On Friday, Lululemon shares rose as much as 1.3% as of 9:55 a.m. in New York.
“The product engine that has fueled this company for years is very stale because it’s a much tougher category where athleisure is out of favor,” Crago said in an interview, adding that Lululemon’s “irrelevance with the consumer is showing up in the numbers.”
BMO’s is just the latest bearish call for the retailer, which has been downgraded by at least four brokers since June and currently has six sell-equivalent ratings, 29 holds and two buys, according to data compiled by Bloomberg. While the average price target of about $100 is near where shares traded at Thursday’s close, the stock has slumped 53% this year and is more than 80% from a December 2023 record.
Sentiment on Lululemon has waned this year with comparable sales in negative territory and investors broadly fleeing sportswear stocks due to weakness across the sector, including from peers like Nike Inc. and Under Armour Inc.
BMO sees further pain ahead for Lululemon as athleisure growth slows and structured fashion like denim makes a comeback. Crago’s team forecasts $6.35 in earnings per share in fiscal 2027 for the retailer, well below the Bloomberg consensus projection of $9.67. The forecast reflects BMO’s view that the company will need to cut prices or liquidate merchandise to reinvigorate demand, which will also pressure margins.
“The $110 legging business is their bread and butter; it’s why their margins are so high,” Crago said. “If the consumer is not prioritizing the category, there’s going to be pricing pressure.”
Lululemon has a new chief executive officer tasked with turning around a business in desperate need of a new vision and direction. Heidi O’Neill, a former Nike executive, began her tenure on Tuesday. Top of mind is stabilizing an ongoing sales slump and rebuilding the brand’s image after some high-profile controversies, including a mishap involving see-through leggings and backlash from a yoga event on the Great Wall.
Crago says the stock could find a bottom at the $50 level given a lack of visibility into the turnaround and a pressured consumer. The stock is currently trading around its lowest level in eight years.
“The entire athletic complex is in free fall, but the negativity right now is probably when there’s the most opportunity,” Crago says.
Written by: Peyton Forte @Bloomberg
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