Date
October 3, 2025
Category
Lululemon: Can this “Downward Dog” of a Stock Recover?
Once a reliable performer, Lululemon stock has experienced a dramatic collapse recently. Currently, it is trading near $180 – around 50% below the level it started the year at and more than 60% below its all-time highs.
Is there any way back for this “downward dog” of a stock? Let’s take a look at the setup.
Disappointing Earnings in 2025
Lululemon’s earnings in 2025 have been disappointing, sending its share price down sharply.
In March, the company gave downbeat annual forecasts when it posted its Q4 fiscal 2024 earnings, noting that consumers were spending less due to increased concerns about inflation and the economy. This led to a 14% drop in the share price.
Then in June (Q1 20251), the company trimmed its full-year earnings per share (EPS) guidance from $14.95 to $15.15 to $14.58 to $14.78.1 This resulted in a 20% drop for the stock.
More recently, in September, the stock fell 19% after the company posted its Q22 earnings. This time, Lululemon slashed both its 2025 sales and profits forecasts taking sales guidance down to 2% to 4% from 5% to 7% and EPS guidance down to $12.77 to $12.97.
What Has Gone Wrong?
As for what has gone wrong at the athleisurewear company, it’s a number of things.
For a start, demand has significantly slowed in North America, its largest market. In Q22, for example, comparable sales for North America were down 4% year on year or 3% on a constant currency basis. In Q11, they were down 2% or 1% on a constant currency basis.
Rising competition is most likely a key factor here. Today, the high-end yoga and athleisure markets are very competitive with the likes of Alo Yoga, Vuori, Fabletics, and Athleta all vying for consumer dollars.
Product issues have probably also contributed to the drop in demand, however. Recently, the brand has been criticized for being slow to adapt to new trends in athleisurewear, and CEO Calvin McDonald has acknowledged that the brand has become “too predictable,” with product cycles running too long.
Looking beyond the drop in demand, Lululemon has also been hurt by US tariffs. These have had a significant impact on profits given that the company has major operations in both Vietnam and Cambodia. The US ending the “de minimis” exemption has been another challenge for the company. This allowed shipments under $800 to enter the US duty-free. As a result of these two issues, Lululemon has said that it is looking at additional costs of $240 million3 this year and up to $320 million in 2026.
How Can Lululemon Improve its Position?
Now, the company has acknowledged that it could do things better and it is working hard to turn things around. Its strategy here is centered on accelerating its global expansion and addressing the lack of product newness in the North American market.
More specifically, it is now focusing heavily on China, where growth remains strong (25% year-on-year growth2 in Q2). This year, the company plans to open 40 to 454 new stores for the year and a lot of these will be in China.
In terms of product development, Lululemon is overhauling its processes to get fresh styles and designs to market faster. Its goal is to increase the percentage of new styles in its overall catalogue from around 23% to approximately 35%5 next spring.
On top of all this, Lululemon is working on tariff mitigation. In response to the removal of the de minimis exemption and the high tariffs on Vietnam and Cambodia, it is making supply chain adjustments to offset the projected $240 million tariff hit.
Overall, the turnaround plan is an effort to reassert Lululemon’s identity as a premium brand with cutting-edge designs and technical performance that competitors cannot easily replicate and improve sales growth and profitability levels.
Trading at a Discount to the Market
If Lululemon can show meaningful progress in its transformation plan, there is certainly scope for a valuation re-rating. Currently, the stock trades at just 13.8 times this fiscal year’s earnings forecast.
At that earnings multiple, the company is trading at a significant discount to the market. Therefore, expectations are very low right now.
One investor who appears to see value in the stock today is “Big Short” investor Michael Burry6. His firm’s latest 13F filing showed that he picked up 50,000 shares in Lululemon in Q2 as well as 400,000 call options.
It’s worth noting that while analysts have been lowering their earnings forecasts and price targets this year, the average price target is well above the current share price. Currently, it sits at $208 – about 17% above the share price today.
Given the low valuation, average price target, and recent buying activity from legendary investor Michael Burry, this could be a stock to keep an eye on. If the company can show evidence of a turnaround, the stock could potentially rebound.
Footnotes:
1 lululemon athletica inc. Announces First Quarter Fiscal 2025 Results, as of June 5, 2025
2 lululemon athletica inc. Announces Second Quarter Fiscal 2025 Results, as of September 4, 2025
3 Yahoo Finance, Lululemon slides as weak US demand, tariff costs cloud holiday outlook, as of September 5, 2025
4 lululemon 2024 Annual Report
5 CNBC, Lululemon shares plunge 20% as it slashes earnings outlook, projects $240 million tariff hit, as of September 4, 2025
6 Yahoo Finance, Michael Burry of “The Big Short” Just Bought Shares of This Beaten-Down Activewear Stock (Not Nike), as of September 2, 2025
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