BMO Capital Markets initiated Lululemon with an underperform this week. The team led by Kelly Crago set a $70 price target that Bloomberg data shows is the Street's second-lowest, implying about a 28% drop from where shares ended Thursday. Crago pointed to a soft quarterly update and a cut to the full-year outlook as signs of a business facing serious headwinds.
In her view, the category has gotten tougher and the brand has lost its edge. She said, "The product engine that has fueled this company for years is very stale because it's a much tougher category where athleisure is out of favor," adding that Lululemon's "irrelevance with the consumer is showing up in the numbers."
BMO sees weakening trends across the Americas and China and says Lululemon is ceding ground to labels resonating with younger shoppers, including Alo and Vuori. Comparable sales are negative, and investors have been backing away from sportswear broadly as the sector softens, including at Nike and Under Armour.
Bearish calls are stacking up. Since June, at least four brokers have downgraded the stock. According to Bloomberg, there are six sell-equivalent recommendations, 29 holds, and two buys, and the mean price target sits near $100, roughly matching Thursday's closing level. So far this year the shares have fallen 53% and trade over 80% beneath the December 2023 peak.
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BMO expects more strain as athleisure cools and more structured fashion like denim cycles back in. Crago's team models fiscal 2027 EPS of $6.35, well below the Bloomberg consensus of $9.67. The call assumes Lululemon will need to discount or clear product to re-ignite demand, which would hit margins. As Crago put it, "The $110 legging business is their bread and butter; it's why their margins are so high." If shoppers pull back from the category, she said, pricing will come under pressure.
Heidi O'Neill, a former Nike executive, took over as CEO on Tuesday, tasked with stabilizing sales and reviving the brand following high-profile dustups ranging from see-through leggings to criticism tied to a yoga event held on the Great Wall. By 9:55 a.m. in New York on Friday, the stock was higher by as much as 1.3%. Crago thinks the stock could ultimately find a bottom around $50 given limited visibility on a turnaround and a strained consumer.
Shares are trading near an eight-year low. As she summed it up, "The entire athletic complex is in free fall, but the negativity right now is probably when there's the most opportunity." For your wallet, that translates to a beaten-up category, a new leader, and a fashion cycle pivot that could take time to play out.
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