Shares of Lululemon Athletica Inc (NASDAQ:LULU) were on track to close 4.6% higher on Wednesday, but analysts say the retailer faces continued challenges in North America and lacks a clear leadership path to drive recovery.
Jefferies analysts reiterated a Hold rating on the stock with a $170 price target, citing “green shoots” in full-price selling but noting that overall guidance remains soft.
Lululemon’s North American revenue for 2026 is expected to decline 1% to 3%, with first-quarter comps projected to fall in the mid-single digits. Canada, previously a stabilizer, is now expected to track slightly below US results, reflecting growing sensitivity to markdowns.
Margins are under pressure, with fourth-quarter gross margin dropping 550 basis points to 54.9% due to tariffs and higher markdowns. Jefferies forecasts a continued margin decline in early 2026, signaling limited near-term profitability improvement despite management highlighting new product launches and experiential activations like Studio Yet in Los Angeles and pop-ups at the BNP Paribas Open.
China remains the bright spot, with fourth-quarter revenue up 28% and comps up 26%. For 2026, the region is expected to grow about 20%, and Lululemon’s balance sheet is strong, with $1.8 billion in cash and $600 million in revolver capacity, alongside $1.2 billion in buyback authorization.
However, Jefferies cautioned that without a permanent CEO to reset strategy and accountability, investor conviction remains low. “Until a credible CEO is in place, investors are left underwriting hope,” analysts wrote.
Jefferies sees Lululemon as “dead money” for now: solid cash and China growth provide support, but North American softness and leadership uncertainty weigh on the stock’s outlook.