Lululemon (NASDAQ: LULU) reported Q1 revenue of $2.47 billion, up 4.2%, but issued weak guidance, significantly below analyst expectations. The company’s stock fell over 10% in after-hours trading, hitting a multiyear low and indicating a potential further 28% to 35% decline to reach critical support levels established in 2018.
All analysts responding to the Q1 results issued price target reductions, averaging $115, with none providing upgrades. Institutional ownership at 85% has become a concern as investors began selling shares ahead of the earnings release. Additionally, short interest has increased for three consecutive months, reaching a 10-month high at 5.28%, suggesting that short sellers may further capitalize on the company’s declining performance.
Despite revenue growth surpassing estimates, Lululemon’s weak outlook and contraction in margins due to markdowns and declining U.S. market strength are raising red flags for investors. The company’s efforts to sustain cash flow through international expansion and share buybacks may not be enough to offset current challenges.
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