JPMorgan has abandoned its bullish outlook on Lululemon. What to do with the stock?

JPMorgan downgraded shares of sportswear maker Lululemon to Neutral and no longer expects their growth. The developer of the popular Align leggings failed to solve its assortment problems in the U.S. for the year, although it increased sales in China. The company postponed the launch of new models in the U.S. market and is selling off inventory at discounted prices, which is affecting margins.

JPMorgan analyst Matthew Boss downgraded the shares of sportswear maker Lululemon Athletica from "above market" (corresponding to a "buy" recommendation) to "neutral" (similar to a "hold"), and also lowered the target price of the securities from $303 to $224. The new target price of the investment bank practically corresponds to the current market price of Lululemon shares.

"While Lululemon remains notably behind competitors in terms of international footprint and is well positioned to build brand awareness, our data points to a slowdown in mainland China. In the U.S., on the other hand, assortment challenges have led to higher sales volumes and more subdued revenue growth, while rising fixed costs and distribution and management costs are adding pressure on margins over the longer term," Boss noted in a note cited by CNBC.

Since the beginning of the year, Lululemon stock is down 42%.

A year ago, Lululemon faced problems with its leggings assortment: customers were dissatisfied with the sizes and colors provided. Because of this, sales growth in the US then slowed. The company also had to withdraw the Breezethrough leggings released in early July last year: customers began complaining about the uncomfortable fit. The product-related difficulties started for Lululemon after the departure of its past director Sang Cho in May 2024. He resigned because investors feared he would prevent the company from "innovating and continuing to win customers with new fashionable styles," wrote CNBC.

Now, among the negative factors affecting the company's shares, JPMorgan noted the postponement of new product launches in the U.S. to the second half of the year, after consumers reacted negatively to the updated basic seasonal colors, which now account for about 40% of the product range. In other words, the coloring problem was never resolved during the year. But it forced Lululemon to resort to targeted sales through summer promotions.

"It is important to note that, according to our data, due to weak sales of basic seasonal items, the Summer Scores promotion started on July 1, which is announced directly on the homepage of the website and in e-mail newsletters. This is the company's way of trying to accelerate the sale of stock balances," Boss wrote.

He also noted that the normalization of growth in the Chinese market may limit Lululemon's compound annual growth rate (CAGR) in the long run. Over the past few years, the company has shown good momentum through new store openings and initial investments in brand recognition. Now, however, Lululemon may be slowing down. "Management noted that the brand is somewhat protected from the unfavorable macroeconomic situation in China (although it remains challenging). However, according to our data, there could be a prolonged phase of 'normalization' in revenue growth as the region approaches its target growth rate of around 30% CAGR for 2021-2026. In comparison, the growth rate for fiscal years 2023-2024 was 48% relative to 2021," Boss elaborated.

Goldman Sachs lowered its target price on shares of Lululemon from $285 to $251 on July 22, maintaining a neutral rating. The investment bank reassessed the entire U.S. apparel and textile sector in light of U.S. import duties (30% for China, 20% for Vietnam, 19% for Indonesia and 10% for the rest of the world) and adjusted its target prices accordingly. Overall, Goldman Sachs remains constructive in its assessment of the consumer resilience of the product group and sees no material downside risk to projected sales this quarter, writes TheFly.

Morgan Stanley downgraded shares of Lululemon from an "outperform" rating to neutral on June 9, and cut its target price from $346 to $280. The investment bank is not confident in the recovery of the company's core market in the U.S., wrote Investing.com.

Research firm Stifel maintained a "Buy" rating on shares of Lululemon with a $324 target price on July 17. This is up 45% from the current value. Stifel described Lululemon in the report as a "best-in-class apparel operator" capable of delivering sustainable earnings growth in the low double-digit percentage range through global expansion and a profitable business model, writes Investing.com. The researchers believe that the third quarter of fiscal 2025 for Lululemon, thanks to its sportswear innovation, could "shift things around" in terms of company performance. Stifel also believes that Lululemon will regain the attention of the female audience in the US.

Lululemon shares have a total of 35 ratings, with 17 analysts recommending them to buy, 15 recommending them to hold, and only three advising them to sell. The Wall Street consensus forecast is $299.6 per share for the leggings maker, up 34% from the closing price on July 21.

This article was AI-translated and verified by a human editor