Investing.com -- Argus Research downgraded Lululemon Athletica (NASDAQ:LULU) to "hold" from "buy," citing concerns over an aging product line, U.S. tariffs, and intensifying competition from rivals like Nike (NYSE:NKE) and Under Armour (NYSE:UA)
Lululemon faces headwinds, including inflationary pressures and a challenging U.S. retail environment, analyst at Argus said. The company’s U.S. sales are expected to weaken in fiscal 2026, with inventory levels remaining elevated.
“The company could see sales slip if yoga becomes less popular or if active wear becomes a less-popular attire for mainstream pursuits,” analyst notes.
Despite strong margins, gross margin rose to 60.4% in Q4, beating estimates, Argus noted risks from discretionary spending cuts and foreign exchange volatility.
Lululemon, which carries no long-term debt and holds $1.98 billion in cash, remains financially stable. However, its reliance on overseas suppliers exposes it to tariff and raw material cost risks.
Shares, trading near $293, were deemed "adequately valued" at 19.2 times forward earnings. Shares of the apparel company have traded in a range of $226-$516 over the past year. Argus said a reduction in inventory or easing inflation could prompt a rating reassessment.
“We think that LULU shares are adequately valued at recent prices just above $293”
The research firm lowered its fiscal 2026 earnings per share estimate to $15.20 from $17.24, while introducing a fiscal 2027 forecast of $17.20. While it maintained a five-year compound annual EPS growth projection of 19%.
Lululemon reported fiscal fourth quarter adjusted EPS of $6.14, in March up from $5.29 a year earlier. EPS topped the consensus forecast of $5.85. Net revenue of $3.61 billion rose 13%, driven by strong growth in international revenue and the addition of 18 company-owned stores.
