Picture this, you’re in your favorite yoga studio, stretching into downward dog when a friend whispers that Lululemon stock is on sale. Your first reaction is probably the same as when you see a coveted pair of Align leggings marked down. “Really? What’s wrong with them?” In the world of investing, that question matters just as much.
LULU’s shares have tumbled more than 50% this year after a rough earnings season, and the market’s mood has shifted from euphoria to skepticism. But before you dismiss the idea of owning this athleisure icon, let’s take a deeper look. Why did the stock fall so hard? Are the fundamentals broken, or is the market simply throwing a tantrum? And perhaps most intriguingly, what hidden strengths keep loyal shoppers, and long-term investors, coming back? Let’s unpack those questions together.
A Stock in the Penalty Box
To understand why Lululemon’s stock has been punished, we need to walk through the numbers. Think of the second-quarter report as a tale of two regions. Net revenue rose 7 percent to $2.5 billion because international markets, particularly China and Europe, grew briskly. Yet at home, the story was less flattering: comparable sales in the Americas declined 4 percent, while international comps jumped 15 percent. Gross profit rose 5 percent, but margins slipped as costs crept higher. You can almost hear the analyst on the conference call asking, “Why are margins down when revenue is up?” The answer lies in a cocktail of rising tariffs, higher markdowns and a changing mix of products.
What really rattled investors was management’s guidance. Executives lowered their fiscal-year outlook to $10.85–$11.0 billion in revenue and $12.77–$12.97 in earnings per share. That’s a sizable cut from prior expectations and it implies a sluggish back half of the year. Why so cautious? The U.S. consumer is wobbling, and new tariffs on Vietnamese-made apparel threaten to shave about $240 million from gross profit. Meanwhile, inventory swelled 21 percent to $1.7 billion as management stocked up before the duties kicked in. As any retailer will tell you, excess inventory often leads to markdowns, and markdowns mean thinner margins. It’s no wonder Wall Street punished the stock, but does that mean you should, too?
Is the Business Broken? Hardly
If all you did was glance at the headlines, you’d think Lululemon was in free fall. But numbers can tell a different story when you zoom out. International revenue climbed 22 percent last quarter, and same-store sales in China surged 17 percent. In other words, the brand is thriving wherever it isn’t heavily exposed to the U.S. consumer slowdown. Meanwhile, the direct-to-consumer channel, those sleek online stores and mobile apps that make ordering leggings as easy as ordering lunch, accounted for about 42 percent of total revenue and grew 8 percent. That mix shift is powerful because digital sales carry higher margins and allow Lululemon to control its relationship with shoppers.
Then there’s the matter of valuation. After the market’s brutal repricing, Lululemon trades around 13 times trailing earnings, a multiple not seen in years. Think back to when everyone was clamoring for these shares at 40 times earnings. What’s changed? The brand still boasts $1.33 billion in cash and minimal long-term debt, and management is buying back stock hand over fist, about $278 million worth last quarter. With gross margins around 58 percent and operating margins north of 20 percent, the business continues to mint cash. From a long-term perspective, that’s an enviable position.
Sustainable Competitive Advantages You Might Not Know
You might be wondering, “Why on earth would anyone pay $100 for leggings when I can grab something at Target for a quarter of the price?” Lululemon’s answer is a blend of science, storytelling and sweat. At the core of its product strategy is the Science of Feel, a research platform that fuses neuromechanics and biomechanics to create fabrics that feel like a second skin. Consider Nulu™, the original “naked sensation” fabric; it’s lightweight, buttery soft and stretches four ways to provide that barely there feeling. For runners and high-impact athletes, Nulux™ delivers the same next-to-nothing sensation while wicking sweat and drying quickly. Everlux™ goes a step further with a double-knit design that keeps your core cool and dry during the hottest training sessions. Sprinkle in Silverescent® technology, which stops odor-causing bacteria in its tracks, and you’ve got fabrics that cheap imitators struggle to mimic.
These innovations aren’t limited to pants. This year LULU unveiled the Go Further running line, born from an experimental project called FURTHER. Ten female athletes were fitted with custom Lululemon gear and asked to run 4,635 kilometers over six days, an ultramarathon that doubled as a laboratory. Their feedback helped engineers design a sports bra that offers both high-intensity support and that coveted “bare-feeling” comfort. The result was the Go Further Bra, crafted from Ultralu fabric with Nulux friction-optimisation built right in. Lululemon even created Support Code technology, which uses precise biomechanics data to tailor support in different areas of the bra. It’s the kind of nerdy engineering you’d expect from a sneaker business, not a yoga brand, and it allows Lululemon to command premium prices while staying ahead of copycats.
Innovation is only half the story. The other half is community. Have you heard about Lululemon’s Essential membership? It’s free, and it gives members perks like receipt-free returns, free hemming, early access to new product drops and partnerships with brands such as Peloton and ClassPass. This isn’t just a loyalty program; it’s a way to keep the brand embedded in your wellness routine. On top of that, Lululemon runs an expansive ambassador program with more than a thousand local yoga instructors, personal trainers and elite athletes. Instead of cutting seven-figure checks to celebrities, LULU empowers these community leaders to host free classes, give product feedback and champion social impact efforts. Ambassadors are chosen because they embody the brand’s values, and they often receive support for their own nonprofit initiatives. The result is a grassroots movement that builds loyalty the old-fashioned way, through genuine relationships and shared sweat.
What About the Threats?
No investment story is complete without acknowledging the risks. First, there’s the simple fact that Lululemon products are expensive. In a recession or even a modest slowdown, some shoppers will trade down. Then there’s the competitive landscape. Nike, Adidas, Alo and a legion of boutique brands are pumping out athleisure wear, and a burgeoning “dupe culture” means knockoffs can be found at Walmart and Amazon. Lululemon has even taken Costco to court over designs it claims were copied. Add to this the Mirror misadventure, a $500 million acquisition that led to a $443 million write-down and a pivot to partner with Peloton, and it’s clear it isn’t infallible.
External forces can hurt, too. About 40 percent of Lululemon’s products are made in Vietnam and 30 percent of fabrics come from China, exposing it to trade disputes. Newly imposed U.S. tariffs are expected to shave $240 million off gross profit in fiscal 2025. To cushion the blow, management bulked up its inventories, but that raises the risk of markdowns down the road. Analysts are already spotting more frequent discounts and softening store traffic. Finally, while men’s apparel and international markets are growing, Lululemon still relies heavily on North American women for its sales. That concentration could limit growth if trends shift.
The Long-Term Outlook
After all that, you might still be wondering: “Should I buy the stock?” The honest answer is that it depends on your patience. In the near term, macro headwinds, tariffs and consumer fatigue will likely keep growth muted. North American comparable sales may remain sluggish until the economy finds its footing, and new launches like the Daydrift high-waisted pants and Go Further running series must prove they can drive meaningful revenue. In the meantime, those markdowns analysts are spotting could pressure margins and investor sentiment.
But if you’re looking beyond the next quarter, the case for Lululemon brightens. This is a business that has shown an uncanny ability to create categories, it built the market for premium yoga pants and is now pushing into women’s running gear with the same zeal. Its community marketing makes customers feel part of something bigger than apparel, turning them into evangelists. And international expansion provides a runway far longer than many investors realize; same-store sales in China grew 17 percent, demonstrating the global appeal of the brand. Management’s Power of Three ×2 plan aims to double 2021 revenue by 2026, focusing on product innovation, guest experience and geographic expansion. Combine that ambition with a rock-solid balance sheet and historically low valuation multiples, and the stock starts to look less like a fallen star and more like a stretched rubber band ready to snap back.
Ultimately, whether Lululemon is “on sale” comes down to perspective. If you think tariffs and a temporary U.S. slowdown have permanently damaged the brand, it may be best to sit on the sidelines. If, however, you believe that a blend of cutting-edge science, grassroots community building and disciplined financial management constitutes a moat that knockoffs can’t breach, then this sell-off looks like an opportunity. Just as the best yoga poses require balance, successful investing often demands patience and faith in the underlying fundamentals. Lululemon’s story, woven from innovation, community and a dash of flair, suggests that the fabric remains intact even as the stock price stretches and contracts. For long-term investors, that could be a bargain worth slipping into.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.