Lululemon Athletica Inc. (NASDAQ: LULU) stock slipped overnight after BMO Capital initiated coverage with an Underperform rating, pointing to 32% additional downside from current levels.
BMO Capital set a $70 price target on the stock, reflecting deep skepticism about the Canadian athletic apparel company’s near-term recovery prospects.
The firm cited weakening consumer demand across both North America and China, along with growing pressure on the company’s historically strong profit margins.
BMO noted that incoming CEO Heidi O’Neill is stepping into the top role at a particularly difficult moment for the brand.
O’Neill, a former Nike executive, formally began her first day leading Lululemon by outlining a turnaround centered on product innovation, improved execution and stronger customer relationships.
“As I look ahead, I truly believe that we have an incredible opportunity in front of us: to re-establish who we are at our core and, from that foundation, take lululemon into its next chapter,” O’Neill said in her opening remarks.
She added that the path forward begins with product, stating the company needs offerings “that are innovative and distinctive, and that gives our guests a reason to choose us, love us, and root for us — again.”
The challenges O’Neill inherits are significant, with second-quarter revenue falling roughly 4% year over year to $2.42 billion, while Americas sales declined a steeper 8% during the same period.
Revenue in China also slipped during the quarter, signaling that the company’s demand problems now stretch well beyond any single geography or market.
Lululemon’s stock has fallen more than 50% this year, pressured by changing consumer tastes, intensifying competition and a series of cuts to the company’s full-year financial outlook.
O’Neill acknowledged the scale of the work ahead, saying “the challenges we face did not emerge overnight, and they will not be fixed overnight — but I am confident they can be fixed.”
Retail sentiment on Stocktwits remained in “extremely bullish” territory despite the analyst caution, with at least one user expressing hope for a V-shaped recovery in the stock.
LULU has lost 37% of its value over the past twelve months, leaving the company under mounting pressure to demonstrate that its reset strategy can translate into measurable sales and margin improvement.
