Investing.com -- Morgan Stanley downgraded Lululemon Athletica (NASDAQ:LULU) to Equal-weight from Overweight and cut its price target to $280 on waning confidence in a recovery in the company’s core U.S. market.
Brokerage said it was less convinced that same-store sales in the Americas, a key performance indicator for Lululemon, will show a meaningful turnaround this year.
U.S. comparable sales declined 2% in the first quarter, compared with flat in the prior quarter and below Wall Street’s expectations.
Newness was back to historical levels, but that alone hasn’t re-ignited growth in the home market, according to analysts at Morgan Stanley (NYSE:MS), adding there may be deeper issues weighing on the brand’s U.S. performance.
MS also expressed concern that even if Lululemon beats earnings expectations on profitability, investors are unlikely to reward the stock until North American sales show consistent improvement.
Following first-quarter results, Lululemon cut its full-year earnings guidance due largely to tariff-related headwinds.
While the second-quarter outlook may prove conservative, Morgan Stanley said full-year earnings guidance is “not fully de-risked,” and sees limited upside to near-term EPS revisions.
The brokerage trimmed its medium-term sales growth outlook for the Americas to low-single digits and now views consensus forecasts through 2028 as “fair-to-high,” particularly on profit margins, which may face pressure from ongoing tariffs and increased spending to expand internationally.
While Lululemon’s current valuation, trading at around 18 times forward earnings, still reflects a premium to peers, Morgan Stanley said the stock is likely to de-rate further as growth moderates and becomes more reliant on markets outside North America.