The athletic apparel retailer Lululemon, once a darling of the sector, is facing significant headwinds. A stark downward revision of its full-year guidance has rattled investor confidence, revealing deep-seated operational challenges within its crucial North American business. The announcement has prompted a critical reevaluation of the company’s near-term prospects.
Guidance Shock Triggers Sell-Off
The catalyst for the recent sharp decline was the earnings report released on September 4. While the company managed to surpass analyst profit expectations for the quarter, this achievement was entirely overshadowed by a severe cut to its annual forecast. Management slashed its 2025 revenue outlook by approximately $300 million. More dramatically, its earnings per share guidance was reduced by nearly $2.
This disappointing revision is attributed to a confluence of factors. A noticeable softening in consumer demand within the U.S. market led to a 4% drop in comparable sales for the second quarter. Furthermore, the company is grappling with substantial tariff-related headwinds. CEO Calvin McDonald conceded that the brand’s casual product assortment had become “too predictable” and was failing to resonate with shoppers. The increased tariff burdens are projected to reduce the 2025 gross profit by a significant $240 million.
Market Experts Downgrade Ratings En Masse
The financial community’s response was swift and severe. Numerous prominent banks and research firms moved to downgrade their recommendations and price targets for the stock.
Should investors sell immediately? Or is it worth buying Lululemon?
Analysts at Telsey Advisory Group removed their “Outperform” rating and drastically reduced their target from $360 to $200. Wells Fargo analysts issued a new target of $160. William Blair similarly withdrew its “Outperform” assessment. In a contrasting move, Truist Securities maintained a “Buy” recommendation with a $290 price target, standing against the prevailing negative sentiment. The overall consensus, however, is clear: the collective rating from the 29 analysts covering Lululemon has now slipped to “Hold,” indicating widespread and persistent skepticism.
International Operations Provide a Silver Lining
Amid the gloom in North America, Lululemon’s international segment continues to be a notable bright spot. The company is anticipating robust growth of 20-25% in China for 2025, with other international markets expected to expand by roughly 20%. While this geographic diversification offers a partial buffer, it is currently insufficient to fully counterbalance the pronounced struggles in the U.S. and the financial impact of tariffs.
In response to these challenges, the management team has outlined a recovery strategy. A fundamental overhaul of the product portfolio is promised, with the proportion of new styles slated to increase from 23% to 35% by the spring of 2026. The company is counting on new innovations, such as its “Align No Line” pants, to reinvigorate consumer interest and drive a recovery.
The critical question remains whether these initiatives can successfully engineer a turnaround. Forthcoming quarterly results will be scrutinized for early signs that the new strategy is gaining traction or if the current downward trend is set to continue.
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