Wells Fargo Lowers Lululemon PT to $225 Amid US and China Concerns

Wells Fargo lowered Lululemon's price target to $225 from $270, citing concerns over US comparable sales visibility, China growth trajectory, and H2 2025 margin headwinds. The company's Q1 2025 net revenue increased 7% YoY to $2.4 billion, with international net revenue surging 19%. Lululemon projects Q2 2025 net revenue to be between $2.535 and $2.56 billion, a growth of 7-8%.

Wells Fargo has recently revised its price target for Lululemon Athletica Inc. (NASDAQ: LULU) to $225, down from $270, citing persistent challenges in the U.S. market and margin pressures in China. The firm maintains an Equal Weight rating on the stock, indicating a cautious stance. The downward revision reflects concerns over U.S. comparable sales visibility, slowing growth in China, and potential headwinds in the second half of 2025.

The U.S. market remains a significant concern for Lululemon, with the company experiencing flat to slightly positive year-over-year (YoY) comparable sales in the second quarter of 2025. Wells Fargo expects this trend to continue, driven more by clearance activity than underlying demand. The firm also noted that the return of more color in products has not reignited consumer interest in the U.S. market.

In China, growth appears to be slowing after a sharp sequential decline in the previous quarter. The firm has cut its 3Q/4Q China comp forecasts to +12% and +10%, down from prior expectations of +15% for both quarters. This slowdown could pose a risk to Lululemon's profitability, as China accounts for a significant portion of its revenue. The firm has also lowered its 3Q and 4Q gross margin assumptions by 25 basis points as a result.

Despite these challenges, Lululemon reported a strong Q1 2025 net revenue increase of 7% YoY to $2.4 billion, with international net revenue surging 19%. The company projects Q2 2025 net revenue to be between $2.535 and $2.56 billion, representing a 7-8% growth rate.

The recent downward revisions in analyst forecasts for Lululemon reflect the evolving nature of short-term business trends. Positive estimate revisions can indicate optimism about the business outlook, while negative revisions can signal concerns. Wells Fargo's new price target of $225 is based on a 15x multiple, which the firm described as "trough levels" but justified due to the risk of "over-earning" and ongoing execution missteps.

Investors should continue to monitor Lululemon's earnings releases and analyst revisions for any further developments. The upcoming earnings release will be of great interest, with the company expected to report earnings per share (EPS) of $2.86, down 9.21% from the prior-year quarter.

References:
[1] https://finance.yahoo.com/news/lululemon-lulu-dips-more-broader-214502392.html
[2] https://www.investing.com/news/analyst-ratings/lululemon-stock-price-target-lowered-to-225-at-wells-fargo-on-earnings-risk-93CH-4168485
[3] https://finance.yahoo.com/news/wells-fargo-cuts-lululemon-target-153309649.html
[4] https://finance.yahoo.com/news/lululemon-athletica-inc-lulu-bull-200826001.html