Wall Street Adds Another Lululemon (LULU.US) Short Seller! After an 81% Plunge from its Peak, BMO Warns Tough Times Are Still Ahead

According to Zhitong Finance APP, BMO Capital Markets believes that Lululemon's (LULU.US) turnaround will not be quick or easy. This athletic apparel company is handing over market share to competitors, and its sales decline continues to deepen. BMO initiated coverage of the stock this week with an “Underperform” rating.

Financial reports show that Lululemon's Q2 revenue fell 4% year-over-year to $2.4 billion, below the market expectation of $2.46 billion; same-store sales excluding currency impact dropped 9%, and declined 10% at constant currency—marking the first decline since the pandemic, with the market expecting a drop of 4.28%. Revenue in the Americas region fell by 8% year-over-year, and comparable sales plummeted by 12%. Adjusted earnings per share came in at $2.92 (including a $0.86 contribution from tariff refunds and related interest), far exceeding the market's forecast of $1.82 but down from $3.10 a year earlier.

Meanwhile, the company has again lowered its full-year guidance, now expecting fiscal 2026 revenue of $10.35 to $10.5 billion, below the previous forecast range given in June and well below the market’s expectation of $11.03 billion. The company also forecasts full-year adjusted EPS of $9.48 to $9.73, likewise short of the market forecast of $10.84. The company previously lowered its guidance in June, meaning its full-year outlook has been cut for the second consecutive quarter.

The BMO analyst team, led by Kelly Krago, stated that Lululemon’s weak quarterly results and lowered full-year guidance reveal a business in deep trouble. Its performance is deteriorating across regions including the Americas and China, while rising brands like Alo and Vuori are increasingly favored by younger consumers. Krago’s target price of $70 is the second lowest on Wall Street, suggesting about 29% downside from Friday’s closing price.

Krago noted: “The product engine that has propelled the company for years is now very outdated, as this is a much tougher category and the athleisure trend has fallen out of favor.” She added that Lululemon’s “disconnect with consumers is evident in the data.”

BMO is the latest major firm to be bearish on Lululemon. According to compiled data, since June, at least four brokerages have downgraded the stock's rating; it currently has six “Sell”, 29 “Hold”, and two “Buy” ratings. Although the average target price of about $100 is close to Friday’s closing price, the stock has fallen 52% this year and is down more than 80% from its all-time high in December 2023.

Lululemon’s share price has plunged more than 80% from its 2023 record high

Market sentiment towards Lululemon has continued to cool this year, as investors sell off athletic apparel stocks amid industry-wide weakness. BMO expects more tough times ahead for Lululemon as growth in the athleisure category slows and structured fashions like denim make a comeback. Krago’s team forecasts per-share earnings for the retailer at $6.35 in fiscal 2027, well below the market consensus of $9.67. This forecast reflects BMO’s view that the company will have to lower prices or clear out inventory to revive demand, which in turn would squeeze profit margins.

Krago remarked, “The $110 yoga pants business is their lifeblood and the reason for their high profit margins. If consumers no longer see this category as a priority, price pressures will follow.”

Lululemon has appointed a new CEO tasked with leading the company—which is in urgent need of new vision and direction—through a transformation. Former Nike executive Heidi O’Neill officially took over on Tuesday. Her top priority will be to stop the ongoing sales declines and reshape the brand’s image. Previously, the company experienced a series of high-profile controversies, including the “see-through yoga pants” product incident and public backlash from holding a yoga event.

Krago stated that, given the lack of visibility on the transformation and ongoing financial pressure on consumers, the stock may find a bottom near the $50 level. Currently, the share price is near an eight-year low. However, she also pointed out, “The entire athletic apparel industry is in free fall, but this extremely pessimistic sentiment may actually present the biggest opportunity.”

Notably, on Friday, investor Michael Burry—who rose to fame through the movie “The Big Short”—posted that he made a large purchase of Lululemon shares at under $100 per share. According to the holdings ranking shared by Burry, Lululemon is his largest long position.