Lululemon's China Cooldown And US Struggles Weigh On Outlook

Lululemon Athletica’s LULU U.S. growth outlook softened as shoppers embraced new fabric innovations over seasonal basics, pushing catalyst launches into second half of 2025.

JP Morgan analyst Matthew R. Boss downgraded Lululemon from Overweight to Neutral, lowering the price forecast from $303 to $224.

Boss writes that the U.S. product catalyst has been delayed to the second half of 2025 after customers responded well to new fabric innovations, such as Align No Line, Be Calm, Daydrift, and Glow Up, but showed weaker interest in the Updated Core-Seasonal colors, which make up roughly 40% of inventory.

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Consequently, second quarter U.S. revenue growth is now forecasted at +1.2% year‑over‑year, down 50 basis points from first quarter’s +1.7% (equating to a +1.0% two‑year stack), as about 80% of the product assortment faces conversion challenges despite second half of 2024 inventory investments designed to accelerate growth into first quarter of 2025.

Management plans further the second half of 2025 investments, expanding Align No Line to all stores by September and using air freight to speed inventory deliveries, citing confidence in first quarter metrics and the U.S. women’s business.

Boss writes that, alongside product assortment conversion headwinds, management noted in its 10‑Q that Americas same‑store sales growth was constrained by softened store traffic amid a “more cautious, discerning consumer” in a “not ideal” U.S. macro backdrop, where first quarter visits fell versus fourth quarter and spending weakened, and highlighted a slowdown in the core U.S. premium activewear market, with Euromonitor forecasting only 1.0% growth in U.S. sports apparel for 2025/26 versus 11.0% in FY21-FY24.

From an analyst’s perspective, Lululemon’s international market penetration remains a significant growth opportunity, particularly as the company aims to scale brand awareness globally. However, recent analyses suggest a more normalized pace of growth in China Mainland, a market previously seen as a robust driver.

Domestically, in the U.S. market, product assortment challenges have led to increased markdowns and a more subdued revenue growth trajectory for the athleisure giant. These internal issues, combined with higher fixed cost leverage hurdles across both operating expenses and selling, general, and administrative (SG&A) expenses, are expected to further constrain Lululemon’s multi-year margins. Consequently, these factors have led to a Neutral rating.

Price Action: LULU shares are trading higher by 0.41% to $224.02 at last check Tuesday.

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