Lululemon Athletica (NASDAQ: LULU) has been one of many best-performing attire shares in the marketplace over this century. Since its 2007 IPO, the inventory, which is finest recognized for pioneering the athleisure class, has jumped 1,090%. These positive factors have been far more spectacular earlier than the inventory tumbled this 12 months, although.
Yr-to-date by means of Nov. 19, the inventory was down 57%, making it one of many worst performers within the S&P 500 (SNPINDEX: ^GSPC) this 12 months.
Like different attire corporations and far of the discretionary items sector, together with Deckers, Nike, Goal, and Chipotle, Lululemon is seeing a pullback in demand as gross sales in its core North American market have primarily flatlined. Within the second quarter, comparable gross sales fell 4% within the Americas, and income within the area was up simply 1%.
Along with the macroeconomic headwinds, administration additionally acknowledged its personal lack of execution because it didn’t preserve product recent and in inventory in particular classes, resulting in weaker gross sales.
It was additionally compelled to slash its steering for the 12 months because of the lack of the de minimis exemption, which had allowed shipments of lower than $800 to be imported into the U.S. with out paying tariffs.
Because of these setbacks, the inventory has dropped sharply, however is that this a shopping for alternative or an indication of issues to come back? Let’s check out three issues it’s best to know earlier than shopping for Lululemon inventory.
Picture supply: Getty Pictures.
CEO Calvin McDonald acknowledged the challenges the corporate is dealing with, in addition to its personal errors. He mentioned, “Our lounge and social product choices have change into stale and haven’t been resonating with friends,” and that the corporate relied on the identical product playbook in sure classes for too lengthy.
To be able to repair these issues, the corporate plans to hurry up its go-to-market course of to check new types, growing the quantity and frequency of latest types. Particularly, it is aiming to extend the share of latest types in its assortment from 23% to 35% by subsequent spring, and can measure buyer conduct to the change and reply accordingly.
Moreover, the corporate has improved its fast-track design capabilities, lowering lead instances by a number of months for some merchandise, and expects these to start to have an effect beginning early subsequent 12 months.
It is too quickly to say if that is sufficient to show Lululemon’s efficiency, however traders needs to be inspired by administration’s prognosis and its fast motion.
Whereas Lululemon is clearly struggling in its core market, it’s discovering success elsewhere. In its worldwide section, comparable gross sales rose 15%, driving income up 22%. Its efficiency was notably robust in China, which has change into its second-largest market outdoors of North America.
Comparable gross sales in China jumped 17% within the second quarter, and income rose 25%.
Lululemon has adopted within the footsteps of different Western manufacturers, together with Nike, Apple, and Starbucks, which have had success in a market recognized for conspicuous consumption, and it sees a protracted runway of development in China.
It opened 5 new shops in China within the second quarter, and greater than half of its worldwide retailer openings this 12 months shall be in China. It is usually a promising alternative in Mexico, the place Lululemon has opened 18 areas during the last 4 quarters.
Following the sell-off this 12 months, Lululemon’s price-to-earnings valuation is the bottom it is ever been, with the attainable exception of the nice monetary disaster, because it now trades at a P/E of simply 11.3.
That is a valuation that signifies that traders count on the inventory to solely have low-single-digit development from right here on out. Nevertheless, regardless of its latest struggles, Lululemon remains to be very a lot a development firm, opening new shops each in North America and overseas, and benefiting from the persevering with development of the class it invented, athleisure.
It is attainable that the patron hunch may weaken and ship Lululemon inventory even decrease, but it surely appears extra seemingly than not that the attire retailer will come out of the opposite aspect a stronger, faster-growing firm, particularly if its fashion refresh pays off.
Buyers have a chance to get a chunk of the expansion inventory for a cut price value.
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Jeremy Bowman has positions in Chipotle Mexican Grill, Lululemon Athletica Inc., Nike, Starbucks, and Goal. The Motley Idiot has positions in and recommends Apple, Chipotle Mexican Grill, Deckers Out of doors, Lululemon Athletica Inc., Nike, Starbucks, and Goal. The Motley Idiot recommends the next choices: quick December 2025 $45 calls on Chipotle Mexican Grill. The Motley Idiot has a disclosure coverage.
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