Lululemon Athletica (LULU) Stock Forecast & Price Target

Lululemon Athletica reported a 47% increase in constant currency revenues from Mainland China, indicating strong demand and a successful execution of its growth strategy. The company's proactive management of gross margins, which saw a compression of 290 basis points year-over-year—better than initial guidance—reflects their adaptability in overcoming tariff headwinds while managing markdowns effectively. Additionally, the ongoing improvements in digital engagement and the reorientation of communication strategies signal a robust foundation for future revenue growth, with expectations of a strengthened customer base by Spring 2026.

Lululemon Athletica faces a challenging outlook as management anticipates declining operating margins in 2026, primarily due to the ongoing impact of tariffs and increased expenses related to incentive compensation and store staffing. The company's U.S. business remains weaker than expected, compounded by leadership turnover, including the upcoming departure of CEO Calvin McDonald at the fiscal year's end. Additionally, broader macroeconomic pressures such as rising interest rates, weaker consumer confidence, and volatility in commodity costs further contribute to a negative outlook for the company's financial performance.