CFRA Lowers Lululemon Rating to Hold Due to Inventory Concerns

CFRA Research analysts have downgraded Lululemon Athletica stock from Strong Buy to Hold and reduced the price target from $400 to $280.

The adjustment is based on a 20.0x multiple of the company’s fiscal year 2025 earnings per share (EPS) estimate, which is lower than Lululemon’s average forward price-to-earnings (P/E) multiple of 26.9x over the past year.

This downgrade reflects CFRA’s concerns regarding inventory challenges Lululemon is dealing with as it approaches the holiday season, which could impact sales during the third and fourth quarters. Analysts noted, “After a nearly 20% increase from its post-Q2 earnings low, we now believe shares are due for consolidation.”

Despite the downgrade, analysts maintain a positive long-term outlook for Lululemon, highlighting the brand’s strong appeal among consumers of different age groups. They also see growth potential in international markets, especially in Mainland China. However, they acknowledge that Lululemon may face challenges in bringing the right products to market in the near term.

The analysts stated, “We think shares will consolidate as we move through the holiday season. We would also like to see a few quarters of improvement to core product inventory.”

Lululemon recently lowered its full-year forecast and reported its first revenue miss in over two years in late August, following a misstep with a highly anticipated product launch and a slowdown in growth in the Americas.

The company now anticipates annual net revenue to fall between $10.38 billion and $10.48 billion, down from the previous range of $10.7 billion to $10.8 billion. Additionally, Lululemon adjusted its projected EPS to between $13.95 and $14.15, lowered from the earlier estimate of $14.27 to $14.47.