On Friday, Lululemon Athletica Inc. (NASDAQ:LULU) stock was downgraded by Goldman Sachs from Buy to Neutral. The firm also significantly reduced its price target for the apparel retailer to $286.00 from the previous $463.00. The downgrade follows a period of challenges faced by the company, including issues with product execution and innovation.
Goldman Sachs cited several reasons for the downgrade, including recent execution challenges faced by Lululemon, launches that did not meet expectations, and an increase in promotional activity. These factors have led to a reassessment of the stock's potential, with the firm now seeing a more balanced risk-reward profile for Lululemon shares.
The investment firm had previously maintained a positive outlook on Lululemon despite a noticeable slowdown in U.S. sales growth and execution missteps earlier in the spring.
Goldman Sachs had believed that the company could spur a rebound in the second half of the year through improvements in product assortment and a robust innovation pipeline, which included the launch of new fabrics in women's leggings.
However, Goldman Sachs has altered its stance due to the weaker trends observed in their quarterly checks earlier this month. The firm had initially believed that the trends were stable enough to support a constructive view of the stock. The new price target reflects the revised expectations from the investment firm regarding Lululemon's growth prospects.
The analyst from Goldman Sachs stated, "We downgrade LULU shares to Neutral from Buy and lower our 12-month price target to $286. Following recent execution challenges, lackluster innovation launches, and rising evidence of more regular promotionality, we see a more balanced risk-reward for the stock." The statement underscores the shift in perspective based on the latest developments within Lululemon Athletica Inc.
In other recent news, Lululemon Athletica Inc. has seen a series of adjustments in analysts' price targets. Goldman Sachs downgraded the company from Buy to Neutral, reducing its target to $286.
BTIG also reduced its target to $360, while Truist Securities lowered its target to $310, yet maintained a Buy rating. Conversely, Baird reduced its target to $470 but kept an Outperform rating, and Deutsche Bank resumed coverage with a Hold rating and a target of $357.
These adjustments follow Lululemon's recent announcement of halting sales of its Breezethrough collection due to customer feedback, and the reported first-quarter earnings per share (EPS) of $2.54, driven by a 40% rise in international sales and a 2% increase in U.S. sales. Additionally, the company expanded its share repurchase program by an additional $1 billion.
In other recent developments, Lululemon shareholders approved executive pay, elected directors, and ratified the appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the fiscal year ending February 2, 2025, during its 2024 Annual Meeting.
However, a shareholder proposal requesting a report on the impact of animal-derived products did not receive enough support and was not approved. These are the recent developments for Lululemon Athletica Inc.
InvestingPro Insights
In light of the recent downgrade of Lululemon Athletica Inc. by Goldman Sachs, it's valuable to consider additional insights from InvestingPro. A notable InvestingPro Tip is that Lululemon holds more cash than debt on its balance sheet, which could provide some resilience in the face of current challenges. Additionally, the stock's Relative Strength Index (RSI) suggests it is in oversold territory, potentially indicating a buying opportunity for investors who are bullish on the company's long-term prospects.
From a data perspective, Lululemon's current P/E ratio stands at 19.74, with an adjusted P/E ratio for the last twelve months as of Q1 2025 at 19.06. This is paired with a PEG ratio of 0.3, which may indicate the stock is undervalued relative to near-term earnings growth expectations. Despite the company's stock performance suffering over the last month, with a 17.44% decline, its gross profit margin remains strong at 58.34%, reflecting a robust underlying business model.
For those interested in further analysis, there are over 10 additional InvestingPro Tips available, which can offer more nuanced insights into Lululemon’s financial health and stock performance. These tips can be accessed through InvestingPro's platform for a comprehensive investment evaluation.
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