Baird cut its rating on Lululemon to Neutral in a note to clients on Tuesday, citing mounting risks to the athletic apparel company’s growth and profitability.
“Our downgrade reflects low near-term confidence in the growth and margin trajectory,” analysts wrote, adding that the “higher degree of earnings uncertainty will overshadow compelling valuation multiples in the near term.”
The firm pointed to “topline risk” in Lululemon’s Americas segment, where recently updated guidance now calls for revenue to fall 1% to flat in fiscal 2025.
“With high-value guests uninspired by recent innovation, deteriorating US demand indicators QTD, and emerging cracks in Canada … it is difficult to see management’s updated revenue guidance as ‘de-risked,’” Baird said.
The bank warned that consensus expectations for a recovery in 2026 may prove optimistic.
Margins are also under pressure. Baird flagged “the annualization of tariff/de-minimis changes (~60bp incremental headwind to F2026), some potential incentive comp normalization, risks of ongoing markdown pressure … and ongoing investment needs/plans.”
Baird said that together, these factors raise the probability of another year of EBIT margin contraction in fiscal 2026.
Quarter-to-date indicators are said to reinforce the cautious outlook. Baird noted that spending data “point to further deceleration” and its tracker shows a sharp rise in clearance activity, with “We Made Too Much” listings up 77% year-on-year in the first half of September.
Baird cut its fiscal 2026 EPS estimate to $13.00, reflecting “a more conservative sales/margin framework,” and lowered its price target to $195 from $225.
While acknowledging Lululemon’s long-term brand strength, the firm concluded: “With such low visibility on the timing/magnitude of a sales recovery, we think it’s likely that the stock could be range bound in the near-to-medium term.”
Source :
https://www.investing.com/news/stock-market-news/baird-downgrades-lululemon-on-low-growth-and-margin-visibility-4251019
