Lululemn faces an uphill battle, this analyst says

Citigroup analyst Paul Lejuez says Lululemon Athletica (LuLulemon Stock Quote, Chart, News, Analysts, Financials NASDAQ:LULU) is facing a difficult activewear backdrop and ongoing weakness in key U.S. categories, but he does not expect the company’s third-quarter results to disappoint.

As reported by the Globe and Mail, in a report ahead of Lululemon’s Dec. 3 release, he described the setup as “a balanced risk/reward,” with a likely EPS beat driven by lower operating expenses, while investor attention will shift quickly to fiscal 2026, where he sees more pronounced margin risk.

Lejuez maintained his “Neutral” rating and US $190.00 price target, compared with a Street average of US$202.11. He raised his third-quarter EPS estimate to US$2.28 from US$2.22, above consensus at US$2.21, and lifted his full-year fiscal 2025 and 2026 forecasts to US$12.96 and US$11.62, respectively, expecting management “to look for offsets to the margin impact from tariffs/de minimis.”

He models third-quarter Americas comparable sales down 6%, “in line with consensus,” with weakness centred in lounge categories, including the scuba, soft-stream and dance-studio franchises. Despite soft regional trends and elevated promotions, he believes results are tracking near plan and that fourth-quarter guidance is conservative enough “for management not to lower.”

Lejuez said recent underperformance reflects both execution issues, “being too slow to react to new trends/customer needs”, and a broader shift in consumer spending away from athleisure toward fashion, a dynamic he does not expect to improve meaningfully in fiscal 2026.

“It will be an uphill battle for LULU to reignite sales in the U.S.,” he said.

While he views near-term results as manageable, he noted that sentiment toward the stock is “extremely negative,” with bearish investors modelling closer to US$10 in fiscal 2026 EPS. He expects that year to be “especially challenging” because of incremental margin pressure from tariffs and the de minimis rule change, layered on top of persistent U.S. softness. He described Lululemon’s margin trajectory as “significantly pressured” and said markdown activity will be a key area of investor focus.

Lejuez also highlighted signs of slowing in China, long one of the company’s strongest growth drivers. Last quarter, management trimmed fiscal 2025 revenue guidance for the region to 20%–25% from 25%–30%, citing weaker traffic in Tier 1 cities due to both macro conditions and assortment issues similar to those seen in the U.S. He models growth at the low end of guidance and warned that “any further weakening in China sales growth would be viewed negatively for the stock.”

After years of outsized category expansion, he said data now point to a continued slowdown across Yoga and Active wear in fiscal 2024, with second-quarter trends decelerating from the first quarter, which itself slowed from fiscal 2023. Combined with “lacklustre product assortment/lack of colour/sizing,”

Lejuez said these pressures leave Lululemon increasingly exposed to competition and promotional intensity through late fiscal 2024 and fiscal 2025.

“Category weakness and a tougher macro backdrop makes it unlikely LULU sees a reacceleration in U.S. trends,” he said, adding that a softer China consumer environment compounds the risk given high expectations for growth in that market.

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