Analyst Says Valuation Looks Cheap But Warns Of FY26 'Reset' Risk

  • Evercore cut its price target on LULU to $130 from $175 and said that the outlook risk outweighs the stock’s “attractive valuation.”

  • Wall Street expects Q1 revenue of $2.37 billion and EPS of $2.60, with revenue slightly below last year and earnings flat.

  • The company expects China revenue to grow 20% this year and continues to see strength in markets such as China and South Korea.

Shares of Lululemon Athletica, Inc. (LULU) rose 0.4% in premarket trading on Thursday ahead of its first-quarter (Q1) results, even as an analyst warned that a potential “big reset” to fiscal 2026 expectations could overshadow the stock’s attractive valuation.

LULU stock has declined 4% so far this week, poised to snap two straight weeks of gains.

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LULU Q1 Preview

On Wednesday, Evercore ISI lowered its price target on LULU to $130 from $175, implying a 3% upside from current levels, while maintaining an ‘In Line’ rating. Ahead of the earnings report, Evercore said that the potential for a “big reset” to the FY26 outlook overrides an “attractive valuation.”

Wall Street is preparing for another quarter of weak growth. According to Koyfin data, Q1 revenue is expected to be $2.37 billion, down from $2.4 billion a year ago and $3.64 billion in the previous quarter. Earnings before interest, taxes, depreciation, and amortization (EBITDA) are projected at $553 million, up from $438.6 million a year ago but below the $946.8 million reported in the previous quarter. Earnings per share (EPS) are expected to remain flat year-over-year at $2.6, compared with $5.01 in the prior quarter.

LULU Turnaround Efforts In Focus

LULU investors will focus on Lululemon’s outlook around the company’s turnaround initiatives. During its recent March earnings call, Lululemon said it is working to boost full-price sales by launching more new products, reducing markdowns and managing inventory. CFO Meghan Frank said:  “We are in the middle of restoring the full-price health of our brand.”

The company also highlighted early results from newer product launches, including Unrestricted Power, ThermoZen and ShowZero, and said it expects positive full-price sales growth in North America to begin in the second quarter and continue in the second half of the year. The company is also betting on new product launches, with Lululemon expecting new items to make up 35% of its assortment in 2026, up from 23% in 2025.

Lululemon is also depending on international markets for growth. The company expects China Mainland revenue to grow 20% this year, while the remainder of its international business is expected to rise at a mid-teens rate. The firm noted strength in markets, including China and South Korea, and laid out plans to expand into additional franchise markets, including India.

Founder Feud Ends Ahead Of Q1 Print

Investors also breathed a sigh of relief after Lululemon resolved a long-running dispute with founder Chip Wilson ahead of its Q1 earnings. Last week, the company agreed to appoint two of Wilson’s nominees to its board and add a third director by Oct. 1. Wilson also agreed to refrain from publicly criticizing the company for 18 months.

The settlement removes a distraction ahead of Heidi O’Neill’s arrival as CEO in September. Wilson had publicly criticized the company’s direction, taking out a Wall Street Journal advertisement and launching a website supporting his preferred board nominees. He accused Lululemon of “losing its soul” and “prioritizing short-term goals at the expense of creativity and product innovation.”

How Do Retail Traders Feel About LULU?

On Stocktwits, retail sentiment for LULU was ‘neutral’ amid ‘high’ message volume.

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LULU sentiment and message volume as of June 4 | Source: Stocktwits

One user said, “$LULU after market. They might push this to $140 til tomorrow before earnings. I can see $200 tomorrow after earnings.”

Another user noted, “$LULU they’ve had some new styles. I’ve seen more items sell out quicker and A LOT less markdowns. May see some positive guidance revision”

LULU stock has declined 62% over the past year.

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Deepti Sri has no position in any of the stocks mentioned in this article. StockTwits’ news team content is for informational purposes only and is not intended as investment advice. For more, see our editorial policy. This article was originally published on StockTwits.

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