On September 4, UBS cut its price target on lululemon athletica inc. (NASDAQ:LULU) from $120 to $106 and maintained a Neutral rating on the stock after the company announced financial results for Q2 of fiscal 2026.
UBS noted that there are multiple factors that could limit upside and create downside risk to earnings over the next 12 months. The firm said lululemon athletica inc.’s (NASDAQ:LULU) product assortment is not resonating with consumers and that traffic remains weak. UBS also does not expect the company to resolve its core issues soon.
Heidi O’Neill, a Nike veteran, is set to become the company’s CEO next week, which also adds to uncertainty. UBS expects her to need several months to develop and implement a plan, which means that fundamental improvement may not come until the second half of 2027. UBS also warned that earnings could decline at a faster rate if operating deleverage continues.
Similarly, Wells Fargo reduced its price target on lululemon athletica inc. (NASDAQ:LULU) from $105 to $95 and maintained an Equal Weight rating on the stock. Wells Fargo highlighted the lack of visibility into the company’s performance. The research firm said that investors may have to wait until next year to hear from the new management about the company’s forward strategy. Wells Fargo said in its research note that it doesn’t “see a credible Bull case for shares today.”
Can the Story Change?
lululemon athletica inc. (NASDAQ:LULU) has lowered its expectations for 2026 and now expects net revenue to be in the range of $10.35 billion to $10.5 billion, representing a decline of 5% to 7%. The company expects diluted EPS to be in the range of $9.48 to $9.73 for the year.
Morningstar senior equity analyst David Swartz told Yahoo Finance after the earnings release that “it makes sense” for the company “to set expectations low at this point because there is a lot of uncertainty, and there’s no reason to put out numbers that are going to be too aggressive and hard to hit.”
Swartz also noted that lululemon athletica inc. (NASDAQ:LULU) has no debt, meaning the company does not face significant financial problems. According to Swartz, the “problem is with the sales growth.” He noted that O’Neill’s experience at Nike could be positive for the company as she takes over the CEO role.
Investor Michael Burry also remains positive on lululemon athletica inc. (NASDAQ:LULU) despite the recent disappointments. Burry said that he expected a weak quarter before the earnings release. The stock has become his largest holding. He continues to hold the shares and said he would “buy more of it if it trades under $100 tomorrow morning, as it is now after hours.” Previously, Burry had also described the stock as “screaming cheap.”
Hedge Fund Interest
Hedge fund interest in lululemon athletica inc. (NASDAQ:LULU) has weakened alongside the stock’s struggles. According to Insider Monkey‘s database, 51 hedge funds held positions in the stock in the second quarter of 2026, down from 61 funds in the first quarter.
Short positioning also remains relatively elevated. As of August 14, short interest stood at 9.51% of the company’s float. This suggests a bearish positioning around the stock.
The market may be overly pessimistic, treating execution errors and management problems as permanent damage to what could otherwise be a quality business. lululemon athletica inc. (NASDAQ:LULU) is going through a difficult time as weak traffic, slower sales growth, and uncertainty around its strategy weigh on investor sentiment. Still, its debt-free balance sheet, incoming CEO, and continued support from investors such as Michael Burry leave room for a turnaround if new management can restore sales growth.
READ NEXT: Rosenblatt Sees Booking (BKNG) as the Best-Positioned Online Travel Agency Despite Challenges and Baird Upgrades Deere (DE) to Outperform on Hopes of Recovery.
Hedge Fund Resource Center