Declining Interest in Leggings Prompts Investment Decision: Should Investors Purchase Lululemon Shares Amid Dips, or Retreat Entirely?
In the activewear market, Lululemon Athletica (LULU) is facing stiff competition from established brands like Adidas, Puma, Nike, and emerging niche brands such as Alo Yoga and Vuori. This competition, combined with a recent profit warning, weaker U.S. demand, tariff cost pressures, and the need to revise its product assortment amid a cautious consumer environment, could pose a significant challenge to Lululemon's stock price level in the second half of 2025.
Evercore ISI's senior research analyst, Michael Binetti, downgraded LULU shares to "in line" and slashed his price target to $180, indicating no meaningful upside from current levels. This downgrade comes as Lululemon stock is down nearly 20% on Friday.
Despite a better-than-expected Q2 performance, Lululemon issued disappointing guidance for the full year. CEO Calvin McDonald admitted that the company has missed opportunities to create new trends, which are resulting in product headwinds in the U.S. market.
The removal of the "de minimis" exemption and higher tariffs under President Donald Trump are meaningful headwinds facing Lululemon Athletica in 2025. In the earnings release, Lululemon itself said new levies could trim its profits by as much as $240 million this year.
These challenges have led to a significant worsening of the gross margin outlook for Lululemon. The forward price-earnings (P/E) multiple of Lululemon is nearly 14x, which is difficult to justify given the reduced guidance.
Despite lowered estimates, the mean target on LULU shares remains at about $276, indicating potential upside of more than 60% from current levels. However, the added competition from Alo and Vuori could make it difficult for Lululemon stock to sustainably recover in the second half of 2025.
It's important to note that all information and data in this article are for informational purposes only. The article was created with the support of automated content tools from Sigma.AI, and Wajeeh Khan did not have positions in any of the securities mentioned in this article. For more information, please view the website Disclosure Policy.
Wall Street firms like Bernstein and Stifel have lowered their estimates for Lululemon stock following its Q2 earnings. As the activewear market becomes increasingly competitive, Lululemon will need to adapt and innovate to maintain its position and regain investor confidence.
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