Lululemon downgraded amid US weakness and tougher competition

Investing.com -- As Lululemon Athletica navigates weakness in its core U.S. business, Needham analysts downgraded the stock to Hold saying the Wall Street’s profit forecasts for 2026 look too high.

The brokerage said it expected new products to lift sales in 2025, but “the competitive environment is simply too challenging at the moment.”

Needham is now modeling a mid-single-digit earnings decline for fiscal 2026, while the consensus is for a flat growth. Brokerage also warned of downside risk over the next year.

North American sales trends have deteriorated, with comparable sales slipping from flat in the fourth quarter of 2024 to declines of 1% and 3% in the first two quarters of 2025.

There is also an unexpected exposure to tariffs on U.S. e-commerce orders, which Needham said is weighing more heavily on Lululemon than anticipated.

Rising competition is a central concern.

“With brands such as Alo, Vuori, Fabletics, Athleta, and others all providing "athleisure" options for consumers, we believe it is stifling LULU’s growth,” Needham wrote.

Non-athletic apparel brands have also entered the segment, while denim’s resurgence has diverted younger shoppers away from Lululemon’s core leggings business.

Needham said the downgrade does not reflect any damage to the brand itself, but rather a difficult operating environment.

“Maybe the biz needs a breather after such a long run,” analyst said.

The company had tripled North American revenues between 2017 and 2023 and went viral post-pandemic with the "belt bag" phenomenon

After rapid growth in North America over the past decade, the business may need a pause before returning to consistent expansion.

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