Truist Securities has downgraded Lululemon Athletica to Sell from Hold and trimmed its price target to $94 from $115, warning that the athletic apparel retailer faces a set of structural challenges that could pressure earnings and delay any substantive rebound.
The brokerage said risks over the near and medium term are skewed to the downside. Analysts at Truist highlighted several datapoints that suggest demand and brand momentum have softened - including weakening card spending metrics, softer signals on Google Trends and TikTok, and social commentary on Reddit indicating a deterioration in brand perception. Truist also noted the stock has rallied more than expected, even as the company issued a cautious first-quarter outlook and third-party indicators continued to show strain.
In its updated financial model, Truist lowered fiscal 2026 and 2027 earnings per share estimates to $10.50 and $10.25, respectively, down from prior forecasts of $11.25 and $11.75. Both revised EPS figures sit below Wall Street consensus, according to the brokerage. In addition, Truist reduced its valuation multiple to 9x from 10x, reflecting what it described as limited visibility on when Lululemon’s earnings might find a trough.
The firm pointed to the company’s impending leadership change as a factor that could influence near-term priorities. With incoming CEO Heidi O'Neill expected to emphasize investments and adopt a "shrink-to-grow" approach to stabilize the business, Truist said the path to earnings recovery may be prolonged and more investment-intensive than some investors anticipate.
Competition from newer activewear entrants and concerns about rising markdown activity were also called out as threats to sales and gross margin. Truist flagged slowing momentum in China after recent public relations controversies and intensifying local competition as another headwind for international growth.
Beyond Lululemon-specific dynamics, Truist drew attention to a policy change affecting cross-border retail shipments - the removal of the U.S. de minimis exemption for certain imports - as an additional structural pressure on profitability for retailers operating in global supply chains.
The brokerage warned that retail recoveries commonly take longer and prove more painful than investors expect, citing parallels with other apparel companies that have faced extended turnarounds. Despite its cautious stance, Truist acknowledged upside scenarios that could mitigate downside risk: an easing of tariff-related pressures, a stronger-than-expected rebound in consumer demand, or successful new product launches that restore sales momentum.
Implications
- Valuation and earnings forecasts have been materially revised lower for fiscal 2026 and 2027.
- Key demand indicators and social media engagement metrics have weakened, according to Truist.
- Regulatory and competitive developments create additional structural pressures on profitability and growth.