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lululemon Stock Drops 37% in 3 Months: A Bargain Buy or Time to Sell?
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Key Takeaways
lululemon's stock tumbled 37% in 3 months, far underperforming peers and the broader market.
Rising tariffs and weak U.S. traffic pressured margins, leading to a trimmed FY25 outlook.
LULU trades at a 13.55X P/E, a premium to peers, despite lowered earnings estimates and profit risks.
lululemon athletica inc. (LULU - Free Report) stock has shown a dismal performance in the past three months, most notably after the first-quarter fiscal 2025 results. The stock has recorded a decline of 37% in the past three months, below the Textile - Apparel industry’s 15.8% fall. The stock also underperformed the broader sector and the S&P 500’s growth of 6% and 9.6%, respectively, in the same period.
Most of the decline stemmed from investor worries about lululemon’s updated outlook, particularly its warning on rising import tariffs, 30% on goods from China and 10% from other countries, which are set to weigh heavily on the gross margin in the second half of fiscal 2025. In response, the company trimmed its fiscal 2025 gross margin forecast, signaling caution on profitability ahead. While brand strength and international expansion remain solid, near-term margin pressure and cost inflation overshadowed an otherwise strong fiscal first-quarter performance.
LULU’s performance is significantly weaker than those of Guess Inc. (GES - Free Report) and Hanesbrands (HBI - Free Report) , which soared 51% and 21.6%, respectively, in the past three months. The stock has also underperformed its competitor, G-III Apparel Group (GIII - Free Report) , which has lost 6.4% in the past three months.
LULU’s 3-Month Price Performance
Image Source: Zacks Investment Research
At the current share price of $202.44, lululemon trades 8.9% above its 52-week low of $185.95. Meanwhile, the LULU stock’s price is 52.2% below its 52-week high of $423.32. The stock trades below its 50 and 200-day moving averages, indicating a bearish sentiment.
LULU’s current forward 12-month price-to-earnings (P/E) multiple of 13.55X raises concerns about whether the stock's valuation is justified. This multiple is higher than the Zacks Textile - Apparel industry average of 11.32X, making the stock appear relatively expensive.
Image Source: Zacks Investment Research
The price-to-sales (P/S) ratio of lululemon is 2.1X, above the industry’s 1.57X. This adds to investor unease, especially considering its VGM Score of C, which suggests it may not be a strong value proposition at current levels.
At 13.55X P/E, lululemon trades at a significant premium to its industry peers. The company’s peers, such as Guess, Hanesbrands and G-III Apparel, are delivering solid growth and trade at more reasonable multiples. Guess, Hanesbrands and G-III Apparel have respective forward 12-month P/E ratios of 10.41X, 9.46X and 8.27X — all significantly lower than LULU. At such levels, lululemon’s valuation seems out of step with its growth trajectory.
The LULU stock’s premium valuation suggests that investors have strong expectations for its growth. However, the stock currently seems somewhat overvalued. lululemon’s ability to meet or exceed these lofty expectations is crucial to justifying its premium pricing.
What’s Behind the Lingering Doubts on LULU Stock?
Despite posting steady top-line growth, lululemon continues to face lingering skepticism from investors, largely due to cracks in its U.S. business and margin outlook. While revenues rose 7% in first-quarter fiscal 2025, comparable sales increased just 1%, weighed down by weaker store traffic in the United States. Management admitted that American consumers remain cautious and highly selective, leaving growth in this critical market stuck in the low-single digits.
Margins are other sore spots. lululemon expects the gross margin to decline by 110 basis points (bps) for fiscal 2025, with the operating margin falling 160 bps. Tariffs are the biggest drag, but higher markdowns and FX headwinds add pressure. Importantly, while management is pursuing modest price increases and sourcing efficiencies, these mitigation strategies will not be fully effective until late 2025 or even 2026, leaving near-term profitability under strain.
Inventory levels also raise concerns. Units were up 16% and dollar inventories rose 23% year over year due to tariffs and FX. That, combined with slower U.S. traffic, can force heavier discounting if demand does not improve, particularly in seasonal and core color assortments where performance has lagged.
Looking ahead, lululemon is banking on international expansion and product innovation to fuel growth. However, with U.S. comps flat, tariffs eating into margins, and management already signaling softer EPS expectations, the near-term outlook remains cloudy. Until LULU proves it can reaccelerate demand in its largest market and defend margins, investor doubts are likely to persist.
LULU's Estimate Revision Trend
Driven by the subdued outlook, lululemon’s estimates have shown a downtrend in the past seven days. The Zacks Consensus Estimate for LULU’s fiscal 2025 and 2026 earnings per share declined 0.5% and 0.6%, respectively, in the last seven days. The downward revision in earnings estimates indicates that analysts are skeptical about the company’s near-term growth potential.
Image Source: Zacks Investment Research
For fiscal 2025, the Zacks Consensus Estimate for LULU’s sales implies year-over-year growth of 5.6%, while EPS indicates a 2% decline. The consensus mark for fiscal 2026 sales and earnings indicates 6.4% and 7.3% year-over-year growth, respectively.
Investment Rationale for LULU: A Cautious Picture
lululemon’s investment case looks cautious as ongoing headwinds overshadow its brand strength. The company continues to face margin pressure from rising tariffs, higher costs and a more promotional U.S. retail backdrop. At the same time, sluggish traffic trends in its core market highlight a softer demand environment. While international growth and product innovation remain long-term drivers, near-term profitability challenges and cautious guidance have dampened investor confidence.
Adding to the concern, analyst estimates have been revised lower, reflecting skepticism about earnings momentum. With shares still carrying a premium valuation, the stock appears vulnerable until clearer signs of recovery emerge. 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 Stock Drops 37% in 3 Months: A Bargain Buy or Time to Sell?
Key Takeaways
lululemon athletica inc. (LULU - Free Report) stock has shown a dismal performance in the past three months, most notably after the first-quarter fiscal 2025 results. The stock has recorded a decline of 37% in the past three months, below the Textile - Apparel industry’s 15.8% fall. The stock also underperformed the broader sector and the S&P 500’s growth of 6% and 9.6%, respectively, in the same period.
Most of the decline stemmed from investor worries about lululemon’s updated outlook, particularly its warning on rising import tariffs, 30% on goods from China and 10% from other countries, which are set to weigh heavily on the gross margin in the second half of fiscal 2025. In response, the company trimmed its fiscal 2025 gross margin forecast, signaling caution on profitability ahead. While brand strength and international expansion remain solid, near-term margin pressure and cost inflation overshadowed an otherwise strong fiscal first-quarter performance.
LULU’s performance is significantly weaker than those of Guess Inc. (GES - Free Report) and Hanesbrands (HBI - Free Report) , which soared 51% and 21.6%, respectively, in the past three months. The stock has also underperformed its competitor, G-III Apparel Group (GIII - Free Report) , which has lost 6.4% in the past three months.
LULU’s 3-Month Price Performance
Image Source: Zacks Investment Research
At the current share price of $202.44, lululemon trades 8.9% above its 52-week low of $185.95. Meanwhile, the LULU stock’s price is 52.2% below its 52-week high of $423.32. The stock trades below its 50 and 200-day moving averages, indicating a bearish sentiment.
LULU Stock Trades Below 50-Day & 200-Day Moving Averages
Image Source: Zacks Investment Research
lululemon’s Premium Valuation
LULU’s current forward 12-month price-to-earnings (P/E) multiple of 13.55X raises concerns about whether the stock's valuation is justified. This multiple is higher than the Zacks Textile - Apparel industry average of 11.32X, making the stock appear relatively expensive.
Image Source: Zacks Investment Research
The price-to-sales (P/S) ratio of lululemon is 2.1X, above the industry’s 1.57X. This adds to investor unease, especially considering its VGM Score of C, which suggests it may not be a strong value proposition at current levels.
At 13.55X P/E, lululemon trades at a significant premium to its industry peers. The company’s peers, such as Guess, Hanesbrands and G-III Apparel, are delivering solid growth and trade at more reasonable multiples. Guess, Hanesbrands and G-III Apparel have respective forward 12-month P/E ratios of 10.41X, 9.46X and 8.27X — all significantly lower than LULU. At such levels, lululemon’s valuation seems out of step with its growth trajectory.
The LULU stock’s premium valuation suggests that investors have strong expectations for its growth. However, the stock currently seems somewhat overvalued. lululemon’s ability to meet or exceed these lofty expectations is crucial to justifying its premium pricing.
What’s Behind the Lingering Doubts on LULU Stock?
Despite posting steady top-line growth, lululemon continues to face lingering skepticism from investors, largely due to cracks in its U.S. business and margin outlook. While revenues rose 7% in first-quarter fiscal 2025, comparable sales increased just 1%, weighed down by weaker store traffic in the United States. Management admitted that American consumers remain cautious and highly selective, leaving growth in this critical market stuck in the low-single digits.
Margins are other sore spots. lululemon expects the gross margin to decline by 110 basis points (bps) for fiscal 2025, with the operating margin falling 160 bps. Tariffs are the biggest drag, but higher markdowns and FX headwinds add pressure. Importantly, while management is pursuing modest price increases and sourcing efficiencies, these mitigation strategies will not be fully effective until late 2025 or even 2026, leaving near-term profitability under strain.
Inventory levels also raise concerns. Units were up 16% and dollar inventories rose 23% year over year due to tariffs and FX. That, combined with slower U.S. traffic, can force heavier discounting if demand does not improve, particularly in seasonal and core color assortments where performance has lagged.
Looking ahead, lululemon is banking on international expansion and product innovation to fuel growth. However, with U.S. comps flat, tariffs eating into margins, and management already signaling softer EPS expectations, the near-term outlook remains cloudy. Until LULU proves it can reaccelerate demand in its largest market and defend margins, investor doubts are likely to persist.
LULU's Estimate Revision Trend
Driven by the subdued outlook, lululemon’s estimates have shown a downtrend in the past seven days. The Zacks Consensus Estimate for LULU’s fiscal 2025 and 2026 earnings per share declined 0.5% and 0.6%, respectively, in the last seven days. The downward revision in earnings estimates indicates that analysts are skeptical about the company’s near-term growth potential.
Image Source: Zacks Investment Research
For fiscal 2025, the Zacks Consensus Estimate for LULU’s sales implies year-over-year growth of 5.6%, while EPS indicates a 2% decline. The consensus mark for fiscal 2026 sales and earnings indicates 6.4% and 7.3% year-over-year growth, respectively.
Investment Rationale for LULU: A Cautious Picture
lululemon’s investment case looks cautious as ongoing headwinds overshadow its brand strength. The company continues to face margin pressure from rising tariffs, higher costs and a more promotional U.S. retail backdrop. At the same time, sluggish traffic trends in its core market highlight a softer demand environment. While international growth and product innovation remain long-term drivers, near-term profitability challenges and cautious guidance have dampened investor confidence.
Adding to the concern, analyst estimates have been revised lower, reflecting skepticism about earnings momentum. With shares still carrying a premium valuation, the stock appears vulnerable until clearer signs of recovery emerge. 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.