Lululemon Athletica Inc ( LULU ). reported mixed fiscal second-quarter results, with earnings ahead of expectations but revenue slightly below consensus.

U.S. comparable sales declined for the first time in years, offset by double-digit international growth. Management trimmed its full-year outlook as tariffs, higher markdowns, and elevated inventories weighed on margins.

Following the results, KeyBanc Capital Markets downgraded Lululemon to Sector Weight from Overweight, reflecting the uncertainty surrounding the retailer's near-term performance.

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Lululemon now expects full-year revenue of $10.85 billion to $11 billion and full-year earnings of $12.77 to $12.97 per share. Analysts had been anticipating full-year revenue of $11.18 billion and earnings of $14.52 per share, per Benzinga Pro.

KeyBanc adjusted its own forecasts to align with Lululemon's updated guidance. The firm now projects fiscal 2025 revenue of $11.0 billion, down from $11.29 billion previously and slightly below the Street's consensus of $11.07 billion.

Fiscal 2026 revenue is expected at $11.68 billion, a decline from the prior $12.26 billion but roughly in line with analyst estimates.

EPS forecasts were cut more sharply, with fiscal 2025 lowered to $12.90 from $14.74 and fiscal 2026 to $13.16 from $16.31. Both figures fall well below earlier projections.

KeyBanc noted that Lululemon's current valuation does not justify an overweight rating. The stock trades at 12.8 times fiscal 2026 earnings and 7.6 times EV/EBITDA, compared with peer averages of 20.4 and 12.5, respectively. Shares have plunged 56% year-to-date, currently hovering near $168, down 32% from a year ago.

Investors should also consider several risks that could impact Lululemon's performance. Macroeconomic headwinds such as inflation, recessionary pressures, or rising unemployment could curb consumer spending on discretionary items like activewear.

The company's brand strength is critical, leaving it vulnerable to negative publicity or ineffective marketing. Additionally, reliance on third-party manufacturers exposes Lululemon to supply chain disruptions from tariffs, production delays, or broader economic uncertainty.

Price Action: LULU stock is trading lower by 0.72% to $166.89 at last check Monday.

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