Lululemon's Stock Has Tumbled, Prompting One Analyst to Recommend Selling, While Others Are Less Certain

Lululemon Athletica Inc. has been working to stay competitive amid growing consumer caution and increasing pressure from rival brands. The company recently introduced several new products, including the Glow Up collection for women, an updated version of its popular Align leggings to mark their 10th anniversary, and relaxed-fit Daydrift trousers.

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In addition, Lululemon has ramped up its marketing, from placing an ad on the eye-catching Las Vegas Sphere to organizing a large yoga and meditation event in Beijing, which reportedly attracted around 5,000 participants. These initiatives helped drive sales during the first quarter.

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However, despite these efforts, Wall Street was unimpressed by Lululemon’s updated outlook, released Thursday. By Friday afternoon, shares of Lululemon had plunged roughly 20%, making it one of the worst performers in the S&P 500.

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The sharp decline followed the company's decision to lower its full-year profit forecast. Lululemon cited new U.S. tariffs on imports as a key threat to its profit margins, suggesting that these duties have added uncertainty to the retail sector, especially as consumers weigh how the added costs might affect their everyday lives.

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UBS analyst Jay Sole raised concerns about the deeper implications behind Lululemon’s recent performance. He questioned whether the slowdown in the company’s U.S. business over the past year was a temporary blip or a sign of more serious challenges.

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He noted that Lululemon's U.S. revenue rose by just 2% in the first quarter, while comparable-store sales in the Americas fell by 2%. In his view, there’s little indication that U.S. growth will significantly rebound.

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Echoing that sentiment, Jefferies analyst Randal Konik advised investors to sell their Lululemon shares. He criticized the company’s continued focus on rolling out new products and expanding in China, arguing that it should instead concentrate on regaining traction with its core U.S. customer base. The Americas account for about 75% of Lululemon’s total revenue, and Konik believes the company’s current strategy is misaligned with the reality of declining foot traffic and intensifying competition.

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Tariffs and inflation have dampened consumer demand for apparel broadly, but Lululemon also faces a wave of competition from celebrity-driven brands and evolving fashion preferences, particularly among younger shoppers who favor more relaxed silhouettes.

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Adding to its challenges, Sun Choe, Lululemon’s former chief product officer and one of the brand’s creative leaders, left the company last year to join Vans.

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Compounding investor worries, Lululemon’s inventory levels swelled by 23% in the first quarter, while sales increased by just 7%. Konik viewed the gap as a red flag, suggesting the company may have too much slow-selling merchandise. This could lead to a rise in markdowns, especially given today’s cautious shoppers and Lululemon’s own forecast that already factors in an increase in promotions.

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Despite these concerns, not all analysts are bearish. Lululemon’s CEO, Calvin McDonald, stated in the earnings release that customer response to the brand’s new offerings has been positive. Analysts at Bank of America agreed, maintaining a favorable view on the company.

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Oppenheimer analysts also defended Lululemon, praising its strong operational foundation and viewing the recent stock drop as a buying opportunity. They noted that Lululemon’s decision to take a more conservative stance on profit expectations was wise, especially in a complex retail environment.

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Oppenheimer further argued that Lululemon could use its larger scale and solid balance sheet to navigate the impact of tariffs more effectively than smaller competitors. In conversations with senior executives, the analysts learned that the company intends to delay price increases, unlike many brands that may be forced to raise prices quickly in response to rising costs. This restraint, they believe, could help Lululemon stand out in the crowded athleisure market.

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On its earnings call, Lululemon said any price hikes would be carefully considered, applied to only a small selection of products, and kept modest. The company manufactures much of its gear in countries like Vietnam and Cambodia, regions likely affected by the new tariffs.

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Oppenheimer concluded that Lululemon’s decision not to rely heavily on price increases could give it an edge. While its strategy may not yield immediate gains, they believe Lululemon has a track record of outperforming modest expectations as the broader market stabilizes. For now, however, the brand faces the difficult task of restoring momentum in its key U.S. market while navigating global headwinds and shifting consumer preferences.

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