BMO Capital Markets initiated coverage of Lululemon Athletica Inc. with an "underperform" rating, stating that the company's turnaround will be neither quick nor easy. Analysts, led by Kelly Crago, highlighted that Lululemon is ceding market share to rivals and experiencing deepening sales declines. The firm's assessment follows a weak quarterly report and a reduced full-year outlook from Lululemon, which revealed significant business challenges.
Crago's team noted that regional performance is deteriorating across the Americas and China. This decline is attributed to the growing popularity of upstart brands like Alo and Vuori among younger consumers. BMO's target price for Lululemon is $70, which implies a decline of about 28% from the stock's closing price on Thursday and is among the lowest on Wall Street. This bearish sentiment from BMO comes after an 81% rout in the stock.
Separately, JPMorgan analyst Matthew Boss recently slashed his price target on Lululemon by 38% to $95 from $154, following a disappointing second-quarter earnings report where revenue fell short of consensus and international sales weakened. The company's full-year revenue guidance was set at $10.35 billion to $10.5 billion, a 5-7% decline from the previous year, and full-year earnings per share guidance dropped significantly to $9.48 to $9.73. Lululemon's stock plunged 17% after its fiscal Q2 2027 results were released, and it has lost more than half its value this year and nearly three-quarters over the past five years.
Lululemon's Q2 revenue fell 4% year-over-year to $2.42 billion, missing the $2.46 billion consensus estimate, while adjusted EPS plunged 34% to $2.01. Americas revenue sank 8%, and same-store sales dropped 12%. Even China, previously a bright spot, saw revenue fall 2% in constant currencies, and comparable sales slid 8%, impacted by negative brand sentiment and a PR gaffe. New CEO Heidi O'Neill, set to take over, faces a challenging environment with declining traffic, negative conversion rates, and a need for product innovation.
The company is responding by focusing on better-performing styles, cutting SKUs, and increasing marketing efforts around major events. However, analysts believe that the recovery will take longer than anticipated, and the brand has lost some of its luster amidst increased competition and shifting athleisure trends. JPMorgan maintained a "Neutral" rating, suggesting the stock is fairly priced but faces a protracted turnaround period.
