UBS has lowered its price target on Lululemon Athletica Inc (NASDAQ:LULU) ahead of the company’s fourth quarter earnings, citing expectations for weaker guidance in fiscal 2026, even as investor sentiment toward the Canadian athletic apparel maker has recently improved.
The analysts reduced their 12-month price target on the stock to $189 from $206 while maintaining a ‘Neutral’ rating. The revised target still implies roughly 11% upside from current levels.
The firm wrote that the upcoming earnings release is unlikely to generate major surprises for the fourth quarter itself, as the company already updated investors on its holiday performance earlier this year.
“The market will likely be focused on LULU's Q1/fiscal year 2026 EPS guides since there is little debate around LULU's Q4 result given LULU updated the market on Holiday trends on January 12th,” the analysts wrote.
UBS expects Lululemon to provide fiscal 2026 earnings guidance of $11.95 to $12.15 per share, below the current Wall Street consensus estimate of $12.57. Despite the lower outlook, the analysts believe much of the caution is already reflected in the stock.
“Our checks suggest LULU's Q1 to date US trends have been lackluster despite improvement in the level of newness in the product assortment,” they wrote.
The report also noted that leadership changes could play a significant role in the company’s near-term performance. UBS wrote that Lululemon is likely to name a new chief executive officer relatively soon and that the decision could have a greater impact on the stock over the next 12 months than the earnings release itself.
“This is why we see a balanced upside/downside skew over the event,” the analysts wrote, adding that options markets are pricing in a roughly 10.3% move in the stock around the earnings report, compared with a historical average of about 9.6%.
Investor sentiment toward the company has improved somewhat in recent months but remains mixed, according to UBS. Data from the bank’s quantitative team shows Lululemon’s “crowding score” has turned slightly positive, while short interest has declined by about 285 basis points since the company reported third-quarter results, falling to around 4.3%.
At the same time, UBS wrote that some investors remain concerned about the trajectory of the company’s US business. “We are hearing concerns LULU's US sales trends were pressured over Q1 to date and see risk the new CEO won't be able to fix its US business,” the analysts wrote.
Industry data reviewed by UBS Evidence Lab suggests first-quarter-to-date US sales growth may have declined in the mid-teens percentage range year-over-year, representing a slowdown from the company’s fourth quarter exit rate. That trend is one reason UBS expects the company to provide a modest outlook for the first quarter, including sales growth guidance of roughly 1% to 3% year over year.
Other indicators were more positive. Web traffic to Lululemon’s sites in the US, Asia-Pacific, and Europe, the Middle East, and Africa increased year over year in February, while international Google search trends remained strong even as US search interest was flat.
Lululemon is set to report its Q4 and full-year earnings after the market closes on March 17.