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lululemon's Premium Valuation Shows Strength: Time to Buy or Wait?
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Key Takeaways
LULU shares have dropped 17.3% in 3 months, underperforming the industry, sector and the broader market.
Margin pressures from tariffs, higher costs and weak U.S. traffic are weighing on near-term profitability.
The FY25 EPS View was lowered and the operating margin is expected to decline 380 basis points.
lululemon athletica inc. (LULU - Free Report) has been witnessing a downtrend in recent months, driven by the expectations for higher expenses and ongoing uncertainty due to the impacts of increased tariffs on imports from China and Mexico. These concerns are reflected in the company’s subdued outlook for fiscal 2025. Additionally, the company continues to face weakness in its U.S. business and the women’s category, mainly driven by an inflationary environment, leading to soft discretionary spending.
However, LULU’s current forward 12-month price-to-earnings (P/E) multiple of 14.88X reflects a premium relative to the Zacks Textile – Apparel industry’s average of 11.35X, making the stock expensive from a valuation perspective. lululemon’s price-to-sales (P/S) ratio of 2.32X is also below the industry’s 1.6X, adding to investor expectations.
Image Source: Zacks Investment Research
LULU’s Premium Valuation vs. Peers
At 14.88X P/E, lululemon is trading at a valuation much higher than its competitors. Its competitors, such as Crocs Inc. (CROX - Free Report) , Gildan Activewear Inc. (GIL - Free Report) and Hanesbrands Inc. (HBI - Free Report) , are delivering solid growth and trade at higher multiples. Crocs, Gildan Activewear and Hanesbrands have forward 12-month P/E ratios of 8.08X, 14.1X and 8.77X — all significantly higher than lululemon.
Is lululemon’s Stock Performance Impressive?
In the past three months, LULU shares have lost 17.3% compared with the broader industry’s decline of 0.7%. The company has also underperformed the Zacks Consumer Discretionary sector’s growth of 16.8% and the S&P 500’s rise of 15.1%.
LULU’s 3-Month Stock Return
Image Source: Zacks Investment Research
lululemon’s current share price of $223.93 is 47.1% below its recent 52-week high mark of $423.32. Also, the stock trades 1.8% above its 52-week low of $219.97. LULU trades below its 50 and 200-day moving averages, indicating a bearish sentiment.
lululemon’s recent stock decline reflects investor concern on multiple headwinds, even as the brand delivered a solid top-line performance. While overall sales rose and global momentum remains intact, the U.S. market is showing signs of softness. Shoppers are more cautious, and traffic in American stores has dipped. Management acknowledged that, despite strong reactions to new product lines and market share gains, consumer spending is becoming more selective, impacting sales growth in its core region.
Another key factor behind the decline is the growing impacts of tariffs. lululemon is facing higher import costs due to increased duties on goods sourced from China and other regions. While the company is taking action to offset these costs, such as adjusting prices, refining supply-chain operations, and renegotiating vendor terms, these measures will take time to yield results. In the meantime, margins are coming under pressure, which has dampened earnings outlooks and raised questions about profitability in the near term.
Adding to investor concerns is the company's cautious tone in first-quarter fiscal 2025. While executives remain upbeat about long-term growth and have reaffirmed their annual sales outlook, they also flagged upcoming pressures on margins and expenses. With operating costs rising due to tariffs, foreign exchange impacts and strategic investments, near-term profit growth looks limited. As a result, despite strong brand equity and international expansion, lululemon’s stock is feeling the weight of short-term operational and economic pressures.
While fiscal 2025 revenue guidance was reaffirmed, EPS guidance for the second quarter was lowered to $2.85-$2.90. Additionally, the operating margin is expected to decline nearly 380 basis points in the fiscal second quarter. The combination of cost headwinds, cautious U.S. consumer behavior and weaker near-term profitability has weighed on sentiment, although lululemon remains confident in its long-term growth strategy and international momentum.
lululemon’s Estimate Revision Trend
LULU’s EPS estimates for fiscal 2025 and 2026 reflect downward revisions following the soft outlook. The Zacks Consensus Estimate for its fiscal 2025 and 2026 EPS declined 0.1% and 0.3%, respectively, in the last 30 days. The downward revision in earnings estimates indicates that analysts have been losing faith in the company’s growth potential.
The Zacks Consensus Estimate for lululemon’s fiscal 2025 sales suggests year-over-year growth of 5.6% and that for EPS indicates a decline of 1.1%. For fiscal 2026, the Zacks Consensus Estimate for LULU’s sales and EPS implies 6.7% and 8.3% year-over-year growth, respectively.
Image Source: Zacks Investment Research
Investment Rationale for LULU
While lululemon's premium valuation may signal confidence in its long-term growth potential, current market sentiment suggests otherwise. The company's elevated price-to-earnings ratio reflects investor expectations for future gains, but recent soft guidance and a downward trend in earnings estimates have raised red flags. The combination of margin pressures from increased tariffs, cautious consumer behavior in the United States, and rising costs has led to a notable dip in profitability outlooks.
Despite its global brand strength and innovative product pipeline, lululemon’s stock is under pressure. The disconnect between high valuation and subdued fundamentals suggests investors may remain cautious until clearer signs of U.S. demand rebound and margin stability emerge. Currently, lululemon carries a Zacks Rank #4 (Sell).
Image: Bigstock
lululemon's Premium Valuation Shows Strength: Time to Buy or Wait?
Key Takeaways
lululemon athletica inc. (LULU - Free Report) has been witnessing a downtrend in recent months, driven by the expectations for higher expenses and ongoing uncertainty due to the impacts of increased tariffs on imports from China and Mexico. These concerns are reflected in the company’s subdued outlook for fiscal 2025. Additionally, the company continues to face weakness in its U.S. business and the women’s category, mainly driven by an inflationary environment, leading to soft discretionary spending.
However, LULU’s current forward 12-month price-to-earnings (P/E) multiple of 14.88X reflects a premium relative to the Zacks Textile – Apparel industry’s average of 11.35X, making the stock expensive from a valuation perspective. lululemon’s price-to-sales (P/S) ratio of 2.32X is also below the industry’s 1.6X, adding to investor expectations.
Image Source: Zacks Investment Research
LULU’s Premium Valuation vs. Peers
At 14.88X P/E, lululemon is trading at a valuation much higher than its competitors. Its competitors, such as Crocs Inc. (CROX - Free Report) , Gildan Activewear Inc. (GIL - Free Report) and Hanesbrands Inc. (HBI - Free Report) , are delivering solid growth and trade at higher multiples. Crocs, Gildan Activewear and Hanesbrands have forward 12-month P/E ratios of 8.08X, 14.1X and 8.77X — all significantly higher than lululemon.
Is lululemon’s Stock Performance Impressive?
In the past three months, LULU shares have lost 17.3% compared with the broader industry’s decline of 0.7%. The company has also underperformed the Zacks Consumer Discretionary sector’s growth of 16.8% and the S&P 500’s rise of 15.1%.
LULU’s 3-Month Stock Return
Image Source: Zacks Investment Research
lululemon’s current share price of $223.93 is 47.1% below its recent 52-week high mark of $423.32. Also, the stock trades 1.8% above its 52-week low of $219.97. LULU trades below its 50 and 200-day moving averages, indicating a bearish sentiment.
lululemon Stock Trades Below 50-Day & 200-Day Moving Averages
Image Source: Zacks Investment Research
What’s Behind LULU’s Stock Decline?
lululemon’s recent stock decline reflects investor concern on multiple headwinds, even as the brand delivered a solid top-line performance. While overall sales rose and global momentum remains intact, the U.S. market is showing signs of softness. Shoppers are more cautious, and traffic in American stores has dipped. Management acknowledged that, despite strong reactions to new product lines and market share gains, consumer spending is becoming more selective, impacting sales growth in its core region.
Another key factor behind the decline is the growing impacts of tariffs. lululemon is facing higher import costs due to increased duties on goods sourced from China and other regions. While the company is taking action to offset these costs, such as adjusting prices, refining supply-chain operations, and renegotiating vendor terms, these measures will take time to yield results. In the meantime, margins are coming under pressure, which has dampened earnings outlooks and raised questions about profitability in the near term.
Adding to investor concerns is the company's cautious tone in first-quarter fiscal 2025. While executives remain upbeat about long-term growth and have reaffirmed their annual sales outlook, they also flagged upcoming pressures on margins and expenses. With operating costs rising due to tariffs, foreign exchange impacts and strategic investments, near-term profit growth looks limited. As a result, despite strong brand equity and international expansion, lululemon’s stock is feeling the weight of short-term operational and economic pressures.
While fiscal 2025 revenue guidance was reaffirmed, EPS guidance for the second quarter was lowered to $2.85-$2.90. Additionally, the operating margin is expected to decline nearly 380 basis points in the fiscal second quarter. The combination of cost headwinds, cautious U.S. consumer behavior and weaker near-term profitability has weighed on sentiment, although lululemon remains confident in its long-term growth strategy and international momentum.
lululemon’s Estimate Revision Trend
LULU’s EPS estimates for fiscal 2025 and 2026 reflect downward revisions following the soft outlook. The Zacks Consensus Estimate for its fiscal 2025 and 2026 EPS declined 0.1% and 0.3%, respectively, in the last 30 days. The downward revision in earnings estimates indicates that analysts have been losing faith in the company’s growth potential.
The Zacks Consensus Estimate for lululemon’s fiscal 2025 sales suggests year-over-year growth of 5.6% and that for EPS indicates a decline of 1.1%. For fiscal 2026, the Zacks Consensus Estimate for LULU’s sales and EPS implies 6.7% and 8.3% year-over-year growth, respectively.
Image Source: Zacks Investment Research
Investment Rationale for LULU
While lululemon's premium valuation may signal confidence in its long-term growth potential, current market sentiment suggests otherwise. The company's elevated price-to-earnings ratio reflects investor expectations for future gains, but recent soft guidance and a downward trend in earnings estimates have raised red flags. The combination of margin pressures from increased tariffs, cautious consumer behavior in the United States, and rising costs has led to a notable dip in profitability outlooks.
Despite its global brand strength and innovative product pipeline, lululemon’s stock is under pressure. The disconnect between high valuation and subdued fundamentals suggests investors may remain cautious until clearer signs of U.S. demand rebound and margin stability emerge. Currently, lululemon carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.