Morgan Stanley on Lululemon (LULU.US) FQ2 FY26 Results: A Reset Fraught with More Risk
Summaries are public. PDF access requires an active membership; all members have the same access. Sign in
Morgan Stanley stays Underweight on Lululemon after FQ2 2026 results, cutting its target price from $93.00 to $83.00—10x FY27 estimated EPS and roughly 20% downside from the $121.77 close on September 3. Management cut the midpoint of FY26 EPS guidance (ex-tariff refunds) by about 20%, driven by weaker revenue outlooks across all regions: total sales are now guided to -7% to -5% year-over-year versus -1% to flat previously, while increased markdowns and fixed-cost deleveraging push the ex-refund operating margin to -660bps year-over-year versus -380bps guided before. Even so, the bank believes guidance may not be de-risked enough: fourth-quarter implied margin improvement—gross margin turning positive and SG&A declining—looks optimistic in a heavily promotional activewear environment, and second-half revenue trends worsened with limited visibility on a bottom. New CEO Heidi O'Neill starts September 8 and is expected to pursue a 'shrink to grow' strategy, bringing broader strategic resets and a fresh round of negative EPS revisions; even if consensus FY27 EPS falls about 20% toward $9, it would remain above Morgan Stanley's $8. Store-opening plans were trimmed from 40 to 35 for the year, with stepped-up brand-building marketing—constructive but insufficient to reverse the thesis. Target horizon is 12–18 months.