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Yahoo
3 days ago
- Business
- Yahoo
Why Lululemon Athletica (LULU) Bulls Shouldn't Throw in the Towel Just Yet
Over the first six and a half months of this year, Lululemon Athletica (LULU) has lost approximately $20.4 billion in market value, as the company faces a perfect storm: rising competition, inventory challenges, and a core market that appears to be reaching maturity. While these issues demand serious attention and action from management, Lululemon remains a standout in the apparel sector with margins well above average and returns on capital far exceeding its cost of capital. Easily unpack a company's performance with TipRanks' new KPI Data for smart investment decisions Receive undervalued, market resilient stocks right to your inbox with TipRanks' Smart Value Newsletter For some, buying into a stock that's still sliding feels like 'catching a falling knife,' but to me, the current price—the lowest in a decade—presents an apparent buy-the-dip opportunity, especially considering the company's solid cushion to potentially turn these structural headwinds around. There are plenty of reasons to be bullish on Lululemon at today's prices, despite its recent struggles. Things are messy for Lululemon stock right now. It has experienced a significant peak-to-trough decline, falling roughly 41% from its January high of $421 to around $247 today. And it got even worse after a double-digit drop following its latest earnings report on June 5, when the company slightly beat analysts' estimates. Lululemon's comparable sales were up just 1% year-over-year, with Americas comp sales down 2%, only partially offset by international comps up 6%. However, what really fueled the bearish reaction was the company's reduction of its full-year EPS guidance from $14.95–15.15 to $14.58–14.78 per share. In my view, these more cautious expectations reflect a combination of competitive pressure, potential product missteps, and a natural slowdown in the U.S. market. While Lululemon has historically handled competition well, new entrants in the premium athleisure space—such as Alo Yoga and Vuori—have been proliferating and capturing market share. There's also the issue of product assortment. Lululemon has struggled to consistently have the right products in stores. The company underwent changes in its design team, which may have contributed to inventory challenges and product shortages in U.S. locations. Most recently, the company reported that inventory increased by 23% in dollar value and 16% in volume, indicating it's carrying a significantly larger amount of product. That could help support future growth, but it could also backfire. If consumer demand doesn't keep up, markdowns may be needed, which would hurt margins. Above all, I think these issues have compounded to weaken performance in Lululemon's more mature markets. In the U.S. and Canada, where the brand is already well-established, future growth depends on innovation to avoid market saturation. So, when a product misses the mark, inventory builds up, and competition intensifies, the impact on sales is felt immediately. It's important to acknowledge that Lululemon's recent challenges aren't solely cyclical in nature. In fact, several appear to be structural—such as increasing competition in the premium athleisure space, market saturation in key regions like the U.S. and Canada, and issues related to product execution and inventory management. These are not short-term headwinds that will resolve on their own; they demand deliberate and strategic action from management. Even so, there are reasons to remain optimistic. Despite these hurdles, Lululemon maintains substantial profitability, with gross margins at 58.3% and operating margins of around 23%—well above those of its industry peers, such as Nike (NKE) and Adidas (ADDYY), which deliver ~10% and 6.5%, respectively. This margin strength provides the company with significant flexibility to navigate its current challenges while positioning for long-term growth. Even in this more challenging environment, Lululemon's ROIC over the last twelve months stands at ~23%, only slightly below the 25.5% achieved the previous year. And when you consider the company's cost of equity—using a beta of 0.8, a 10-year Treasury yield of ~4.3%, and an equity risk premium of around 4%—the cost of capital is near 7.5%. From that perspective, Lululemon is still generating strong value creation that exceeds its capital cost. Even with more cautious forecasts for bottom-line growth this year, I would argue that while ROIC may dip, it's too early to talk about structural deterioration in the company's core fundamentals. There's still a solid long-term story here, if execution improves. The bottom line is that Lululemon's stock is currently trading at 16.7x earnings, its lowest level in the past decade—at least—a significant drop from the 96x earnings multiple it reached back in 2020 and 65x in January last year. Based on my calculations, I believe Lululemon is undervalued by about 30% at today's price. Using a reverse DCF model and assuming the market consensus for the next five years top-line CAGR at 8%, with EBIT margins stabilizing around 23.3% (even though consensus expects considerable EPS growth over this period), I estimate Lululemon's free cash flow to the firm in year five years will be roughly $2.2 billion, assuming no changes in working capital. Bringing that back to present value and discounting at around 7.7%—a rate I find reasonable for a profitable, debt-free, and strong-brand business like Lululemon—and using a perpetuity growth rate of 2.5%, this implies an equity value of about $38.9 billion. That's comfortably above the current market cap of ~$30 billion. Despite some mixed views, the consensus among 29 analysts covering LULU over the past three months leans moderately bullish. Out of those, 15 recommend buying the stock, 12 suggest holding, and only two advise selling. LULU's average stock price target stands at $310.44, implying approximately 30% upside from the current share price over the coming twelve months. Lululemon must confront and resolve what increasingly appear to be structural headwinds in order to restore investor confidence and support a sustained recovery in its share price. The encouraging news is that, despite recent downward revisions to growth forecasts, the stock appears undervalued at current levels, provided the company can maintain at least modest revenue growth and stabilize its margins. For patient, long-term investors, this creates a compelling opportunity to capitalize on short-term weakness and establish or add to a position in LULU. Disclaimer & DisclosureReport an Issue Error al recuperar los datos Inicia sesión para acceder a tu cartera de valores Error al recuperar los datos Error al recuperar los datos Error al recuperar los datos Error al recuperar los datos
Yahoo
3 days ago
- Business
- Yahoo
lululemon athletica inc. (LULU): I 'Misjudged' The Firm, Says Jim Cramer
lululemon athletica inc. (NASDAQ:LULU) is one of the . lululemon athletica inc. (NASDAQ:LULU) is a Canadian retailer that sells athletic apparel and associated products. The firm's shares are down by 36% year-to-date primarily on the back of a massive 20% drop in June. lululemon athletica inc. (NASDAQ:LULU)'s shares sank after the firm warned about the impact of tariffs and added that it would have to raise prices. In his previous remarks about the company, Cramer discussed the quarter in detail and lamented that he had believed lululemon athletica inc. (NASDAQ:LULU) would be in a better place. This time around, he maintained his opinion and added that his evaluations of the firm's competition were also incorrect: 'I think I misjudged LULU, I misjudged the competition.' A store employee in an athletic apparel store restocking merchandise. Cramer's previous comments about lululemon athletica inc. (NASDAQ:LULU), made ahead of June's quarter report discussed the firm in detail: '[The stock] sold off some more after Liberation Day because Lulu has a huge manufacturing presence in Vietnam, which was set to be hit with a 46% tariff…. Once those reciprocal tariffs got delayed, Lulu was able to mount a comeback. But can this rebound continue? I'm cautiously optimistic. I'm going to tell you why. First, I'm still hopeful that the tariffs on Vietnam won't end up being anywhere near that 46% level that was announced on Liberation Day… So the bottom line: lululemon is a beaten-down retail that I think can continue making a comeback. We'll see what happens next week, but for the time being, I am inclined to take a chance here. Maybe do it with call options, deep in the money. Why not? The expectations for lululemon are so low that the risk-reward seems pretty skewed to the upside.' While we acknowledge the potential of LULU as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the best short-term AI stock. READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires. Disclosure: None. This article is originally published at Insider Monkey. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
4 days ago
- Business
- Yahoo
Jim Cramer on lululemon: 'I am Shocked at How They Missed the Quarter'
lululemon athletica inc. (NASDAQ:LULU) is one of the . Noting that they are 'down', a caller mentioned that they took Cramer's advice and bought lululemon athletica inc. (NASDAQ:LULU) shares. In response, Cramer said: 'I thought that LULU would do better. I thought that LULU would do better. I was quite surprised. I just, it was a bad conference call. It was a bad quarter. I am aghast to think that this could be… such a horrible situation. They had tariff problems. They had the wrong fashion. Everything went wrong for Calvin McDonald, and what can I say? I just don't think he's capable of being as bad as that stock was, 17 times earnings. It was a bad quarter, though. And you know… I've thought a lot about this, done a lot of soul searching, I am shocked at how they missed the quarter, and I wouldn't be surprised if there weren't some shakeups if that happened again.' A store employee in an athletic apparel store restocking merchandise. lululemon (NASDAQ:LULU) designs and sells high-performance athletic apparel, footwear, and accessories. The company caters to fitness and lifestyle activities through various retail and online channels. While we acknowledge the potential of LULU as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock. READ NEXT: The Best and Worst Dow Stocks for the Next 12 Months and 10 Unstoppable Stocks That Could Double Your Money. Disclosure: None. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
5 days ago
- Business
- Yahoo
Jim Cramer on lululemon: 'I am Shocked at How They Missed the Quarter'
lululemon athletica inc. (NASDAQ:LULU) is one of the . Noting that they are 'down', a caller mentioned that they took Cramer's advice and bought lululemon athletica inc. (NASDAQ:LULU) shares. In response, Cramer said: 'I thought that LULU would do better. I thought that LULU would do better. I was quite surprised. I just, it was a bad conference call. It was a bad quarter. I am aghast to think that this could be… such a horrible situation. They had tariff problems. They had the wrong fashion. Everything went wrong for Calvin McDonald, and what can I say? I just don't think he's capable of being as bad as that stock was, 17 times earnings. It was a bad quarter, though. And you know… I've thought a lot about this, done a lot of soul searching, I am shocked at how they missed the quarter, and I wouldn't be surprised if there weren't some shakeups if that happened again.' A store employee in an athletic apparel store restocking merchandise. lululemon (NASDAQ:LULU) designs and sells high-performance athletic apparel, footwear, and accessories. The company caters to fitness and lifestyle activities through various retail and online channels. While we acknowledge the potential of LULU as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock. READ NEXT: The Best and Worst Dow Stocks for the Next 12 Months and 10 Unstoppable Stocks That Could Double Your Money. Disclosure: None. Sign in to access your portfolio
Yahoo
12-06-2025
- Business
- Yahoo
LULU Q1 Earnings Call: Management Addresses Margin Headwinds, International Growth, and U.S. Consumer Shifts
Athletic apparel retailer Lululemon (NASDAQ:LULU) met Wall Street's revenue expectations in Q1 CY2025, with sales up 7.3% year on year to $2.37 billion. On the other hand, next quarter's revenue guidance of $2.55 billion was less impressive, coming in 0.7% below analysts' estimates. Its GAAP profit of $2.60 per share was 0.5% above analysts' consensus estimates. Is now the time to buy LULU? Find out in our full research report (it's free). Revenue: $2.37 billion vs analyst estimates of $2.37 billion (7.3% year-on-year growth, in line) EPS (GAAP): $2.60 vs analyst estimates of $2.59 (0.5% beat) The company reconfirmed its revenue guidance for the full year of $11.23 billion at the midpoint EPS (GAAP) guidance for the full year is $14.68 at the midpoint, missing analyst estimates by 1.8% Operating Margin: 18.5%, down from 19.6% in the same quarter last year Locations: 770 at quarter end, up from 711 in the same quarter last year Same-Store Sales rose 1% year on year (6% in the same quarter last year) Market Capitalization: $30.23 billion Lululemon's first quarter results reflected a combination of shifting consumer behavior in the United States and continued momentum in international markets. Management emphasized that U.S. consumers remain cautious, with CEO Calvin McDonald stating, 'Consumers remain intentional about their buying decisions,' despite Lululemon gaining market share in the premium athletic wear segment. Internationally, the company reported strong growth in China and the broader APAC and EMEA regions, aided by new store openings and brand activations, such as the Summer of Align campaign. Product innovation, including launches like Daydrift and Align No Line, contributed to guest engagement and supported sales across both athletic and lifestyle categories. Looking ahead, Lululemon's outlook is shaped by several external and internal factors, including tariffs, ongoing investments in new markets, and evolving consumer trends. CFO Meghan Frank highlighted that gross margin pressure will intensify in the near term due to increased tariffs and foundational investments, but mitigation strategies—such as selective price increases and supply chain efficiencies—are expected to gain traction later in the year. McDonald underscored that while the U.S. market faces headwinds, the company will continue to invest in innovation and global expansion, aiming to leverage its strong balance sheet. Management believes its diversified product pipeline and international growth will help offset margin pressures. Management attributed the quarter's performance to cautious U.S. consumer behavior, strong international expansion, and ongoing product innovation. Margin pressure was mainly linked to tariffs and strategic cost increases. U.S. consumer caution: Leadership noted that U.S. store traffic declined relative to last year, and purchasing behavior remains deliberate. However, Lululemon reported modest revenue growth in the U.S. and asserted it gained market share in premium athletic wear segments. International market strength: China Mainland and other international regions delivered double-digit sales growth, with McDonald highlighting expansion into new markets like Denmark and Turkey, and upcoming entries into Italy, Belgium, and the Czech Republic. Product innovation and newness: The company pointed to strong guest response for new product launches like Daydrift trousers, Be Calm, Glow Up leggings, and the Align No Line update. Early sell-through rates were high, leading to plans for broader distribution in the fall. Brand campaigns and engagement: Lululemon increased brand awareness through campaigns such as the Summer of Align, featuring global events and influencer partnerships. Management reported a rise in unaided brand awareness in the U.S. from the mid-30s to 40%. Tariff and margin headwinds: CFO Meghan Frank explained that higher tariffs and modestly elevated markdowns were the main drivers behind the decline in operating margin, with mitigation efforts focusing on selective pricing actions and supply chain efficiencies expected to have a larger effect in the second half of the year. Lululemon expects external cost pressures and consumer trends to shape revenue growth and margins over the next several quarters. Tariff impact and mitigation: Management identified tariffs as a primary driver of margin compression in the near term. Frank stated that mitigation actions—such as targeted price increases and sourcing adjustments—will become more significant later in the year, with the expectation that these measures will help offset higher costs. Continued global expansion: The company plans to open 40 to 45 new stores in 2025, with the majority outside the U.S., focusing especially on China. Management believes international markets remain underpenetrated, providing a long runway for growth. Product pipeline and consumer response: Leadership emphasized the importance of new product launches and innovation to drive sales. They plan to expand both technical and lifestyle categories, responding to consumer preferences for newness, while closely monitoring U.S. traffic and macroeconomic headwinds. In future quarters, the StockStory team will be monitoring (1) whether mitigation strategies for tariffs and cost inflation are reflected in improved gross margin, (2) signs of U.S. traffic stabilization or recovery, and (3) continued robust international growth, particularly in China and new markets. Progress in executing new product launches and maintaining brand engagement will also be closely tracked. Lululemon currently trades at a forward P/E ratio of 16.6×. In the wake of earnings, is it a buy or sell? The answer lies in our full research report (it's free). The market surged in 2024 and reached record highs after Donald Trump's presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025. While the crowd speculates what might happen next, we're homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver's seat and build a durable portfolio by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025). Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
