Goldman Sachs downgraded Lululemon Athletica (NASDAQ:LULU) from Buy to Neutral, citing "execution challenges" that are weighing on the company's growth.
Analysts have also lowered their 12-month price target for Lululemon to $286.
Recent issues with execution, lackluster innovation launches, and an increase in regular promotional activities have led to a more balanced risk-reward outlook for Lululemon's stock, according to the bank.
Goldman Sachs had previously maintained a positive view on the company despite a slowdown in U.S. sales growth and visible execution missteps in the spring.
The expectation was that Lululemon could drive a sequential reacceleration in the second half of the year through improvements in its product assortment and innovation pipeline, particularly with new fabric launches in women's leggings.
"However, as a result of weaker execution and innovation, we now have fading confidence in the near-term growth prospects for the brand in the US market," said the bank.
"We have seen limited signs of material innovation as we've moved through the summer, and we were disappointed by the company's launch and quick removal of the new Breezethrough franchise, both of which suggest near-term execution is more choppy than we had initially anticipated."
This has led to a lack of confidence in the brand's near-term growth prospects in the U.S. market. The bank adds that the company's increased promotional activities have also raised concerns that customers are being trained to expect regular discounts, further impacting growth.
Store checks and proprietary survey data from HundredX indicate other execution missteps, adding to the cautious outlook. Goldman Sachs states, "We no longer look for a 2H inflection in sales growth and believe the brand is likely more susceptible to competitive pressures and macro factors."
With few upside catalysts on the horizon, Goldman Sachs expects Lululemon's stock to remain rangebound until the company can demonstrate sustained U.S. full-priced sales improvement and stronger innovation-led product execution.