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Lululemon Athletica Set to Top Second Quarter Earnings Expectations on Cost Control, Share Repurchases, UBS Says

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Lululemon Athletica Set to Top Second Quarter Earnings Expectations on Cost Control, Share Repurchases, UBS Says

Lululemon Athletica (LULU) is poised to top Wall Street's view for its second-quarter earnings per share, driven by cost control and buybacks despite soft global demand, UBS Securities said in a client note Tuesday.

UBS expects earnings of $1.84 per share in the second quarter, compared with the analyst consensus of $1.82.

"We believe global demand softened during the quarter and likely fell short of Street expectations," UBS analysts Jay Sole and Mauricio Serna said. "We anticipate disciplined cost management and greater than expected share repurchase activity drives (Lululemon's second quarter) EPS to come in above expectations."

The athletic apparel retailer is expected to lower its fiscal 2026 earnings guidance by $1.25 to $9.70 to $9.90 per share due to "weak" China and US sales growth outlooks, the UBS analysts said. The Street estimate is $10.93.

There is little chance that Lululemon's earnings will positively impact investors' sentiment around the direction of the company's US and international businesses, the firm said. "We note (Lululemon) sentiment already leans bearish and thus likely limits price-to-earnings ratio downside," Sole and Serna wrote. "This is why we see only a moderately tilted upside/ downside skew around the event."

UBS said that weak online trends in Mainland China point to softer demand for Lululemon and second-quarter gross merchandise value will likely drop 48% year-over-year. "This is a key reason we anticipate below-consensus China Mainland sales growth in (second quarter) and in (second-half)," the note added.

The growing demand risk in China is driven by self-inflicted public relations blunders, including a social media backlash over its Great Wall event and concerns around polyfluoroalkyl substances in products, according to the note.

"We see risk as Alo Yoga continues to sell on Tmall and begins to roll out stores in the region that it further pressures (Lululemon's) China sales growth rate trajectory," UBS said. Alo Yoga is a high-end American sports and lifestyle brand.

The brokerage reduced its price target on Lululemon's stock to $120 from $124 and reiterated a neutral rating.

"While we see a negative risk/reward over the (second quarter) event, we expect Lululemon to perform in-line with peers over (the next twelve months)," Sole and Serna added.

The company's second quarter results are scheduled for Sept. 3. Heidi O'Neill joins Lululemon as chief executive on Sept. 8 and will replace interim co-CEOs Meghan Frank and Andre Maestrini.

Earlier in August, sportswear maker Under Armour (UAA, UA) reported a fiscal first-quarter sales miss and reduced fiscal 2027 revenue outlook to a mid-single-digit percentage rate decline from a slight drop previously.

Lululemon shares were down 4.2% in Tuesday trading and have fallen 43% this year.

Price: $117.96, Change: $-4.83, Percent Change: -3.93%

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