Morgan Stanley reiterated its Underweight rating on Lululemon, maintaining a bearish outlook ahead of a leadership transition. The investment bank expects incoming CEO Heidi O'Neill to implement a shrink to grow strategy.
This overhaul focuses on repositioning product lines, reducing store footprints, and cutting back on promotional discounts. Morgan Stanley anticipates these adjustments will create significant earnings headwinds for several quarters.
While Lululemon maintains a strong balance sheet and growth in China, the bank warns that 2027 consensus earnings estimates remain too optimistic. Analysts expect short-term financial pressure before any potential growth reacceleration occurs.