Stock Market Battle: Lululemon - Predictions of Decline versus Growth
Lululemon Faces Challenges as it Expands into Footwear
Lululemon, the popular athletic apparel brand, has entered the footwear market with the launch of the Blissfeel women's running shoe. However, the fashion and retail industry's competitive landscape presents significant challenges for the company.
With consumers having numerous options and newer upstart brands using social media to drive sales, Lululemon will need to compete effectively against established players like Nike. The company's management team is directly competing against Nike in the men's, international, and footwear segments.
Lululemon's management team aims to double annual revenue to $12.5 billion between fiscal 2021 and 2026. To achieve this goal, the company plans to double men's and direct-to-consumer digital sales, as well as quadruple international revenue.
The internet enables the emergence of newer brands that could pose a threat to Lululemon's market position. The success of Lululemon in the footwear segment may take some time to significantly impact the company's overall performance.
In the most recent quarter, Lululemon generated a gross margin of 53.9% and posted year-over-year revenue and profit growth of 31.6% and 31.1% respectively. The growth profile and financials of Lululemon may justify a higher valuation multiple than its rivals.
Despite these positive indicators, Lululemon's shares trade at a price-to-earnings ratio of 35, which is lower than its historical five-year average of 54 but higher than that of Nike and Under Armour. This disparity could be a cause for concern for some investors.
The bear argument against Lululemon is that it may struggle to remain relevant and on top of consumers' minds in the long term due to the competitive nature of the fashion and retail industry. This concern was evident in 2022 when Lululemon's stock was down 29% and the S&P 500 was down 20%.
By 2025, these concerns seem to have materialized as the company faces stalled North American growth, tougher competition from smaller and cheaper brands, and a notable slowdown in revenue growth from high double digits to around 7.3%. Lululemon’s early mover advantage in premium athleisure has faded somewhat as market saturation sets in and competitors gain ground.
The company’s stock price, which reached an all-time high of $511.29 in late 2023, had plunged about 60% by mid-2025, reflecting these competitive and macroeconomic headwinds. Additionally, Lululemon has missed three consecutive earnings estimates by wide margins, raising concerns about its growth trajectory and prompting downgrades from analysts like JP Morgan, who lowered their price targets citing these struggles.
Valuation-wise, despite a lower stock price making Lululemon appear "cheap," some analysts suggest this discount could be justified by deteriorating fundamentals and uncertain near-term outlook, making it a risky investment proposition.
In summary, the key bear arguments are:
- Stalled growth and market saturation in North America, diminishing Lululemon’s historical high-growth status.
- Rising competitive pressure from smaller, less expensive athleisure brands eroding market share.
- Disappointing earnings results and downward revisions in profitability forecasts causing valuation worries and analyst downgrades.
These factors combined illustrate why investors were cautious or bearish on Lululemon stock starting in 2022 and continuing through subsequent years. However, Lululemon ranked third in the clothing category among the Gen-Z demographic in Piper Sandler's spring 2022 Taking Stock With Teens survey, suggesting that the brand still maintains a strong appeal with certain demographics.
The company's expansion into the men's and international markets will be key drivers for the company's revenue growth over the next five years. The success of Lululemon's foray into footwear remains to be seen, but the brand's resilience and adaptability in the face of competition will be crucial to its continued success.
References: 1. Forbes 2. MarketWatch 3. CNBC 4. Bloomberg
- To ensure continued success, Lululemon's management team plans to invest heavily in the men's and international markets, with the aim of quadrupling international revenue and doubling men's and direct-to-consumer digital sales.
- The stock market performance of Lululemon has been volatile, with the company's shares trading at a lower price-to-earnings ratio compared to its historical average, yet higher than that of Nike and Under Armour, a factor that may concern some investors.
- As Lululemon faces increased competition from smaller and cheaper brands, and stalled growth in North America, the company will need to strategically invest in ways that maintain its popularity among certain demographics, such as Generation Z, while also making significant improvements in the footwear segment.
