In the afternoon of Tuesday, shares of Lululemon Athletica dropped around 3% from $225 to $197.80 after Wells Fargo lowered its target price for the stock to just $205.
Brokerage said that the removal of US de minimis exemptions could affect the margins and profitability for the sportswear manufacturer.
This exemption allowed for duty-free entry to the US of international shipments valued less than $800 with minimal documentation.
Lululemon relies heavily on Canadian distributors to provide its US online business.
Analysts at Wells Fargo estimate the new rule could reduce earnings by between $0.90 to $1.10 each share.
Brokers adjust their forecasts in response to challenges
Wells Fargo’s downgrade comes after a series of other brokerages have cut their price targets.
Baird’s price target for Lululemon was reduced to $260, down from $340 on August 11. The company still maintained its “Outperform rating” however.
The company noted that, despite the sharp drop in stock prices, it continued to demonstrate strength across categories and geographies during the first quarter 2025.
TD Cowen has also reduced its price target to $298, from $321. It still maintains a Buy recommendation.
Firms lowered their expectations due to macroeconomic challenges, increased competition and inconsistencies with product performances outside of core categories.
Sharon Zackfia, William Blair’s Sharon Zackfia, expects that the company will hit the upper end of its second quarter guidance with revenue projected to grow at 8%.
She predicted gains for both brick-and mortar stores and online channels. China, she added, should also provide an extra boost as sales increase following the Lunar New Year.
Stocks near historical lows
Lululemon, once a darling of the market has changed its fortunes.
The shares are now down by 64% since their highs. This is their biggest decline since 2008-09 global financial crisis.
The stock price has fallen by 48% in the past year.
This sharp drop has resulted in the stock trading with a P/E ratio of 13,39. It is the lowest it’s been in the last five years, and well below its lofty multiple of 90% in 2021.
Investors see a lower valuation as a chance, saying that modest revenue growth can support earnings expansion over the long term, particularly if repurchase programs are in place.
Investors are divided about the outlook for stocks: Should you invest?
The market sentiment is mixed.
LSEG data shows that out of 33 brokerage firms covering the firm, 16 have rated the stock as “buy”, or even higher. 14 others rate it as “hold”, and 3 give the rating “sell”.
Analysts have set a median target price of $277.50 for the stock, which is well above its current price.
The Motley Fool UK analysts note that even a low-single-digit growth in revenue could translate to double-digit growth in earnings if Lululemon is able to maintain margins while expanding internationally.
This long-term perspective may motivate investors to continue holding the stock, despite any short-term downturns.
The stock is a bargain at these record low valuations. This post may change as new information becomes available
