Lululemon athletica inc. (NASDAQ:LULU) is under renewed pressure from Wall Street after reporting financial results for the second quarter of fiscal 2026, with two major banks lowering their price targets on the stock. The cuts extend a broader reset in expectations for the athletic apparel sector, where post-pandemic demand growth has cooled and brands are competing harder for a more selective U.S. consumer.

On September 4, UBS cut its price target on LULU from $120 to $106 while maintaining a Neutral rating. The firm cited multiple factors that could limit upside and create downside risk to earnings over the next 12 months. UBS said lululemon's product assortment is not resonating with consumers and that traffic remains weak, and the firm does not expect the company to resolve its core issues soon. Product missteps have been a recurring theme for the retailer: earlier this year the company acknowledged that key franchises in its women's lineup had undersized opportunity, a gap rivals have been quick to exploit.

The upcoming CEO transition adds further uncertainty. Heidi O'Neill, a Nike veteran who previously served as Nike's president of consumer, product and brand, is set to become chief executive next week. UBS expects she will need several months to develop and implement a plan, meaning fundamental improvement may not arrive until the second half of 2027. The firm also warned that earnings could decline at a faster rate if operating deleverage continues.

Wells Fargo similarly reduced its price target on LULU from $105 to $95, keeping an Equal Weight rating. The bank highlighted the lack of visibility into the company's performance and said investors may have to wait until next year to hear from the new management about the company's forward strategy. In its research note, Wells Fargo stated it doesn't "see a credible Bull case for shares today."

Lowered Guidance for 2026

Lululemon has lowered its expectations for 2026. The company now expects net revenue in the range of $10.35 billion to $10.5 billion, representing a decline of 5% to 7%, and diluted EPS between $9.48 and $9.73 for the year.

Morningstar senior equity analyst David Swartz told Yahoo Finance after the earnings release that "it makes sense" for the company "to set expectations low at this point because there is a lot of uncertainty, and there's no reason to put out numbers that are going to be too aggressive and hard to hit."

Swartz noted that lululemon carries no debt, meaning the company does not face significant financial problems. According to Swartz, the "problem is with the sales growth." He added that O'Neill's experience at Nike could be positive for the company as she takes over the CEO role. The debt-free balance sheet stands out in an apparel industry where many peers carry meaningful leverage, giving the company more time to fix its merchandising and traffic problems.

Burry Remains a Holder

Investor Michael Burry remains positive on the stock despite the recent disappointments. Burry said he expected a weak quarter before the earnings release, and the stock has become his largest holding. He continues to hold the shares and said he would "buy more of it if it trades under $100 tomorrow morning, as it is now after hours." He had previously described the stock as "screaming cheap."

Hedge Fund Interest Fades

Hedge fund interest in LULU has weakened alongside the stock's struggles. According to Insider Monkey's database, 51 hedge funds held positions in the stock in the second quarter of 2026, down from 61 funds in the first quarter.

Short positioning also remains relatively elevated. As of August 14, short interest stood at 9.51% of the company's float, suggesting bearish positioning around the stock.

The market may be overly pessimistic, treating execution errors and management problems as permanent damage to what could otherwise be a quality business. Lululemon is going through a difficult period as weak traffic, slower sales growth, and uncertainty around its strategy weigh on investor sentiment. Still, its debt-free balance sheet, incoming CEO, and continued support from investors such as Michael Burry leave room for a turnaround if new management can restore sales growth. Key milestones to watch include the new CEO's initial strategy disclosures expected next year and whether upcoming product launches can rebuild traffic in the critical holiday quarter.