Lululemon (LULU) may have built its reputation on premium yoga pants and premium growth, but that narrative is starting to fray.
Wall Street had high hopes heading into the company’s Q1 earnings report last week, despite mounting pressure in the consumer retail space from President Trump’s tariffs. Unfortunately, Lululemon came up short.
The stock plunged 20% the morning after earnings, closing Monday at $259.04. That’s a long way from the $450 price targets some analysts had forecast in the lead-up to results, according to Bob Lang of Explosive Options.
“Some of these analysts had targets even up to $450 a share,” Lang told Schwab Network, which would imply a 53.9% upside from current levels.
But that optimism turned fast.
“I was a little concerned to hear on the call and in the report that Lululemon was blaming their poor results and poor guidance on tariffs,” Lang said. “We’re just not hearing that from some of the competition.”
Lang pointed to The Gap (GAP), which owns rival brand Athleta. Despite its own earnings struggles, Gap made no mention of tariffs. Unlike Lululemon, which highlighted trade pressure throughout the call.
According to Lang, 67% of Lululemon’s products are made in China. But even as the trade war drags on, he’s not convinced tariffs fully explain the brand’s lackluster performance.
The company also manufactures goods in Sri Lanka, Indonesia, Bangladesh, and Vietnam, all recently targeted by Trump’s new tariffs.
Despite already charging $128 for a pair of leggings, CFO Meghan Frank said “modest” price hikes are coming to a “small portion” of the brand’s assortment.
Growth story losing steam
To be fair, the quarter wasn’t a complete disaster. Lululemon met earnings expectations and reaffirmed its full-year sales forecast. But it lowered its profit outlook, now projecting EPS of $14.58 to $14.78, down from a prior range of $14.95 to $15.15.
“In the U.S., consumers remain cautious right now, and they are being very intentional about their buying decisions,” CEO Calvin McDonald said.
Same-store sales in the Americas dropped 2% during the quarter. That’s a red flag for a brand that once commanded premium valuation on the promise of breakneck growth.
Wall Street has responded accordingly. At least 12 analysts have slashed their price targets, with J.P. Morgan issuing the steepest cut from $389 to $303. The stock is now down 32.3% year-to-date.
Strategists are also questioning Lululemon’s leadership direction. Rather than focusing on core U.S. customers, management appears more interested in rolling out new products and doubling down on China.
“Despite (Americas) decline, management continues to prioritize product newness and China expansion over addressing a pullback from core customers and evident traffic declines,” Jefferies analyst Randal Konik wrote in a note.
“We believe this misalignment is concerning.”
Lang was more blunt. “What you have to look at with Lululemon now is that it’s always been an expensive stock because it’s been a growth play. But the reality tells you the growth is slowing down.”
He noted that the company expects earnings to fall 1% in fiscal 2026 and grow just 7% in 2027. For a stock that once traded at 23 times earnings, that’s not the trajectory investors signed up for.
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