UBS and Wells Fargo cut their price targets on Lululemon after the company's second-quarter fiscal 2026 results and lowered full-year guidance. Incoming CEO Heidi O'Neill isn't expected to reshape strategy for months, but a debt-free balance sheet and continued support from investor Michael Burry keep a turnaround case alive.
Analysts cut price targets after Q2 results
On September 4, UBS cut its price target on Lululemon (NASDAQ:LULU) to $106 from $120, maintaining a Neutral rating after the company's second-quarter fiscal 2026 results. Wells Fargo followed, lowering its target to $95 from $105 while keeping an Equal Weight rating.
UBS said Lululemon's product assortment isn't resonating with consumers and that traffic remains weak, and it does not expect the company to resolve its core issues soon. Wells Fargo highlighted a lack of visibility into the company's performance and said investors may have to wait until next year to hear from new management about strategy. It added that it does not see a credible bull case for the shares today.
New CEO adds to the uncertainty
Heidi O'Neill, a Nike veteran, is set to become Lululemon's CEO next week, adding to the uncertainty UBS cited. The firm expects her to need several months to develop and implement a plan, meaning fundamental improvement may not come until the second half of 2027. UBS also warned that earnings could decline at a faster rate if operating deleverage continues.
Lowered guidance for 2026
Lululemon has lowered its expectations for 2026 and now expects net revenue of $10.35 billion to $10.5 billion, a decline of 5% to 7%. The company expects diluted EPS between $9.48 and $9.73 for the year.
Morningstar senior equity analyst David Swartz told Yahoo Finance that setting low expectations makes sense given the uncertainty, since there is no reason to issue numbers that are too aggressive to hit. Swartz noted that Lululemon carries no debt, meaning it does not face significant financial problems, and said the company's problem lies with sales growth. He added that O'Neill's experience at Nike could work in the company's favor as she takes over.
Hedge funds pull back, but Burry keeps buying
Hedge fund interest in Lululemon has weakened alongside the stock's struggles: 51 hedge funds held positions in the second quarter of 2026, down from 61 in the first quarter, according to Insider Monkey's database. Short interest also remains elevated, standing at 9.51% of the company's float as of August 14.
Investor Michael Burry remains positive despite the recent disappointments. He said he expected a weak quarter before the earnings release, and Lululemon has become his largest holding. Burry said he would "buy more of it if it trades under $100 tomorrow morning", as the stock traded after hours.
Lululemon's debt-free balance sheet, incoming CEO, and continued backing from investors such as Burry leave room for a turnaround if new management can restore sales growth.
Source: Insider Monkey
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