Lululemon’s newest bear sees more pain ahead after 81% rout

Sentiment on Lululemon has waned this year with comparable sales in negative territory and investors broadly fleeing sportswear stocks due to weakness across the sector. Photo by Angus Mordant/Bloomberg

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Analysts led by Kelly Crago say the Vancouver-based company’s weak quarterly report and reduced full-year outlook revealed a deeply challenged business. Regional performance is deteriorating across the Americas and China as upstart brands like Alo and Vuori grow in favour among younger consumers. Crago’s US$70 price target — the second-lowest on the Street, according to data compiled by Bloomberg — assumes a roughly 28 per cent decline from where the shares closed on Thursday.

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On Friday, Lululemon shares rose as much as 1.3 per cent as of 9:55 a.m. in New York.

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“The product engine that has fuelled this company for years is very stale because it’s a much tougher category where athleisure is out of favour,” Crago said in an interview, adding that Lululemon’s “irrelevance with the consumer is showing up in the numbers.”

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BMO’s is just the latest bearish call for the retailer, which has been downgraded by at least four brokers since June and currently has six sell-equivalent ratings, 29 holds and two buys, according to data compiled by Bloomberg. While the average price target of about US$100 is near where shares traded at Thursday’s close, the stock has slumped 53 per cent this year and is more than 80 per cent from a December 2023 record.

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Sentiment on Lululemon has waned this year with comparable sales in negative territory and investors broadly fleeing sportswear stocks due to weakness across the sector, including from peers like Nike Inc. and Under Armour Inc.

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BMO sees further pain ahead for Lululemon as athleisure growth slows and structured fashion like denim makes a comeback. Crago’s team forecasts US$6.35 in earnings per share in fiscal 2027 for the retailer, well below the Bloomberg consensus projection of US$9.67. The forecast reflects BMO’s view that the company will need to cut prices or liquidate merchandise to reinvigorate demand, which will also pressure margins.

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“The US$110 legging business is their bread and butter; it’s why their margins are so high,” Crago said. “If the consumer is not prioritizing the category, there’s going to be pricing pressure.”

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Lululemon has a new chief executive tasked with turning around a business in desperate need of a new vision and direction. Heidi O’Neill, a former Nike executive, began her tenure on Tuesday. Top of mind is stabilizing an ongoing sales slump and rebuilding the brand’s image after some high-profile controversies, including a mishap involving see-through leggings and backlash from a yoga event on the Great Wall.

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Crago says the stock could find a bottom at the US$50 level given a lack of visibility into the turnaround and a pressured consumer. The stock is currently trading around its lowest level in eight years.

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“The entire athletic complex is in free fall, but the negativity right now is probably when there’s the most opportunity,” Crago says.

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