MW As Lululemon's stock tumbles, one analyst says 'sell shares now.' Others aren't so sure.

By Bill Peters

A 'pivotal question' is whether the slowdown in the athleisure company's U.S. business is temporary 'or a sign of something more fundamental,' UBS says

Amid consumer anxieties and tougher competition, Lululemon Athletica Inc. has launched a new Glow Up line of workout wear for women, a new iteration of its Align leggings to celebrate their 10-year anniversary, and looser-fitting Daydrift trousers.

It has amped up its marketing efforts - from a promotion that put an ad on the Las Vegas Sphere $(SPHR)$, to a yoga and meditation event in Beijing that it said drew some 5,000 people. In turn, sales rose during its first quarter.

But in the wake of the athleisure-gear maker's outlook on Thursday, those efforts weren't enough for Wall Street.

As Lululemon's stock $(LULU)$ was shaping up to be the S&P 500's SPX biggest laggard on Friday, analysts weighed the company's potential advantages, like its size and new products, against the prospect of deeper issues.

Shares of Lululemon were down 20% on Friday afternoon. The steep drop arrived a day after the company lowered its full-year profit outlook, saying that U.S. tariffs on imports threatened to hit its margins and had "brought uncertainty into the retail environment as consumers try to assess the impact they will have on daily life."

"A pivotal [Lululemon] question is if the slowdown in its U.S. business over the last 12-plus months has been temporary, driven by one-off factors, or a sign of something more fundamental," UBS analyst Jay Sole said in a research note on Friday.

"Our main takeaway from LULU's 1Q report is the likelihood that something more fundamental is at play has increased," he added.

While Lululemon's U.S. revenue was up 2% during its first quarter, same-store sales in the Americas region were down 2% overall. Sole said he didn't see any way for growth in the U.S. to accelerate meaningfully.

Jefferies analyst Randal Konik expressed similar concerns. In a note on Friday, he advised clients: "Sell shares now."

"Despite this decline, [management] continues to prioritize product newness and China expansion over addressing a pullback from core customers and evident traffic declines," he wrote. "We believe this misalignment is concerning.

"Fixing the Americas should be the top priority given its size (75% mix), yet the focus on newness isn't resonating broadly and the unaddressed rise in competition has led to increased promotions," Konik continued.

Along with tariff- and inflation-related distress, which has suppressed demand for clothing, Lululemon faces steeper competition - including from celebrity-endorsed lines and looser fits that are more popular with younger shoppers. Last year, Lululemon's chief product officer, Sun Choe - seen as one of the primary creative forces behind the brand over much of the past decade - departed the company for Vans $(VFC)$. In March, Lululemon said not enough people knew about its brand.

Against that backdrop, Konik noted that Lululemon's inventory, or its stockpile of unsold goods, was piling up. Those inventories ballooned 23% during the first quarter. Lululemon's overall sales were still up 7%, but the analyst said the difference between the sales gains and the increased inventory was concerning.

"This gap signals slow-moving product, which will likely necessitate increased markdowns to clear, especially given the cautious consumer backdrop and the uptick in markdown forecasts already embedded in [full-year] guidance," Konik said.

Still, other analysts were more optimistic. Lululemon Chief Executive Calvin McDonald, in the company's earnings release, said customers had "responded well" to new products. For BofA analysts, that was enough to keep them upbeat.

Oppenheimer analysts, meanwhile, praised Lululemon's strength on an operational level, and said the current dive in its stock price is a chance to buy the stock. They noted that the company's more cautious view on profits was prudent.

"We recently traveled with senior leadership of LULU in Boston," the Oppenheimer analysts wrote. "Management explained clearly that they viewed tariffs as an opportunity to utilize the operational scale and superior balance sheet to distance from less well-positioned, sub-scale competitors across the athleisure space."

"To this end," they continued, "LULU could prove slower to lift prices, as tariffs start to impact cost of sales for the company."

During Lululemon's earnings call, management said they would be "very intentional" with any decisions on price increases. They added that those increases would happen on a "small portion" of the company's merchandise, and would be "modest in nature." Lululemon relies heavily on nations like Vietnam and Cambodia for manufacturing.

"We believe LULU is opting not to leverage pricing power, at least initially, to position better against brands with fewer strategic options and forced to take prices higher," the Oppenheimer analysts said.

"LULU has in the past demonstrated an ability to steadily top downbeat, initial expectations as conditions across the broader sector solidify," they added.

-Bill Peters

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June 06, 2025 13:53 ET (17:53 GMT)

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