Lululemon Athletica (NASDAQ:LULU) shares declined around 3% premarket Thursday following recent price target cuts from Citi and JPMorgan analysts and one downgrade.
This double hit has raised concerns about the company's growth prospects amid a challenging retail environment.
Analysts at Citi lowered Lululemon's rating from Buy to Neutral, slashing the price target from $415 to $300.
They cited a "category slowdown" in active apparel as a major factor, noting that Citi's credit card data indicated a further deceleration in Q2 compared to Q1, which was already a significant drop from FY23.
Additionally, the bank believes Lululemon's "lackluster product assortment/lack of color/sizing" has made it more vulnerable to increased competition and promotional pressures in the latter half of FY24 and FY25.
Analysts further explained that "category weakness and a tougher macro backdrop make it unlikely LULU sees a reacceleration in US trends in 2H," leading to lowered FY24 and FY25 earnings estimates from $14.44/15.94 to $13.77/14.05.
"While LULU has performed extremely well in China over several years, incremental weakening of the Chinese consumer environment is an added risk to the stock," the bank concluded.
Meanwhile, analysts at JPMorgan lowered Lululemon's price target to $338 from $457, maintaining an Overweight rating. The investment bank also removed the stock from its Focus List.
JPMorgan highlighted Lululemon's significant growth potential, emphasizing the brand's strong domestic presence and untapped international opportunities.
They pointed to a "significant untapped international presence," the "outsized growth of men's," and a push into newer categories such as personal care and footwear as key drivers. Despite these growth avenues, the recent adjustments reflect cautious optimism amid a slower retail environment.
The price target decreases, especially from Citi, reflect broader concerns about the sustainability of Lululemon's growth in a slowing active apparel market.