On Tuesday, Morgan Stanley adjusted its outlook on Lululemon Athletica Inc. (NASDAQ: NASDAQ:LULU), reducing the price target to $314 from the previous $326 while maintaining an Overweight rating on the stock. The revision reflects a cautious stance on the apparel company's medium-term estimates, particularly concerning its performance in China and international markets.
The firm's analysis highlighted Lululemon's significant success in China, attributing it to the brand's strategic market entry and strong positioning within the region. Despite this achievement, the research suggests that future expectations for the company's growth in China and other international markets may be overly optimistic.
The reduction in the price target to $314 is a result of these adjusted expectations for Lululemon's international expansion. The Overweight rating, however, indicates that Morgan Stanley still sees the company's stock as a favorable investment compared to its industry peers.
Lululemon has been recognized for its near-unprecedented triumph in the Chinese market, which is seen as a result of its careful and methodical approach to entering the region and its relevant brand positioning. This success has been a key factor in the company's growth strategy.
The firm's statement on the matter emphasized the need to recalibrate expectations, stating, "Our China deep dive confirms LULU's nearly unprecedented success in the region – we think a function of its thoughtful/methodical entry & relevant positioning. While that's impressive, our work shows forward expectations may be too high for China/int'l, leading us to trim our M-T estimates. Reduce PT to $314."
In other recent news, Lululemon Athletica Inc. reported a 7% increase in its second-quarter total revenue, reaching $2.4 billion, with earnings per share (EPS) of $3.15, surpassing the expected $2.94. Despite these figures, the company revised its fiscal year 2024 sales growth forecast from 11-12% to 8-9%.
In response to these developments, analyst firms adjusted their outlooks. Baird maintained an Outperform rating and a price target of $350, while Jefferies maintained an Underperform rating with a price target of $220, citing potential weakening in the company's fundamentals.
Citi maintained its Neutral rating, expressing concern over the effectiveness of Lululemon's strategy to rejuvenate U.S. sales. KeyBanc reduced the price target but retained an Overweight rating, reflecting confidence in Lululemon's long-term fundamentals. TD Cowen raised the price target while keeping a Buy rating, highlighting the company's resilient financial model.
InvestingPro Insights
To complement Morgan Stanley's analysis, InvestingPro data offers additional insights into Lululemon's financial position. Despite the reduced price target, Lululemon's financials show some strengths. The company boasts a robust gross profit margin of 58.54% for the last twelve months as of Q2 2025, reflecting its pricing power and operational efficiency. This aligns with the InvestingPro Tip highlighting Lululemon's "impressive gross profit margins."
Moreover, Lululemon's revenue growth remains positive at 13.02% over the same period, indicating continued expansion despite concerns about international market expectations. The company's P/E ratio of 20.98 suggests a relatively moderate valuation compared to its growth prospects.
Interestingly, an InvestingPro Tip notes that Lululemon is "trading at a low P/E ratio relative to near-term earnings growth," which could present an opportunity for investors despite the recent stock price decline. This is further supported by the PEG ratio of 0.33, indicating that the stock might be undervalued relative to its expected growth.
For readers interested in a more comprehensive analysis, InvestingPro offers 11 additional tips for Lululemon, providing a deeper understanding of the company's financial health and market position.
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