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Lululemon Athletica Inc. (LULU), founded in Vancouver in 1998, began as a yoga-focused brand with a retail space inside a yoga studio. With a $39.2 billion market cap, this powerhouse is turning its Align leggings into a global status symbol, selling one pair every four seconds.
While dominating North America’s women’s market, Lululemon is thriving in new ventures, particularly in China, where explosive growth underscores its international success. Seamlessly blending performance and style, LULU remains at the forefront of athletic apparel innovation and global expansion.
Shares of Lululemon Athletica have dipped 26.7% over the past 52 weeks and 37.5% on a YTD basis, trailing behind the broader S&P 500 Index ($SPX), which rallied 31.8% over the past year and returned 25.8% in 2024.
Narrowing the focus, LULU also underperforms the VanEck Retail ETF’s (RTH) 29% returns over the past year and 22.6% gains on a YTD basis.
LULU stock stumbled this year as shifting U.S. consumer dynamics and fierce competition chipped away at its once-unshakable market position. Core American markets faltered, and the botched launch of Breeze Through leggings - pulled after design complaints - shook investor confidence.
Compounding the issue, economic realities muted the usual Fed rate-cut rally in consumer discretionary stocks. Weakness in the women’s category compounded challenges, particularly in the U.S. Domestic-heavy retailers like Lululemon struggled amid inflation and softening demand, while analyst downgrades further weighed on sentiment. As investors pivot toward companies with stronger international exposure, LULU’s heavy reliance on American markets has turned from strength to vulnerability, driving its underperformance in a turbulent economic backdrop.
Amid challenges, Lululemon shines with explosive growth in China, its fastest-expanding market. Sales there surged 40% this year, with tailored products and premium pricing fueling demand. Men’s athleisure is another bright spot, growing faster than women’s, driving global expansion.
For the current fiscal year, ending in January 2025, analysts expect Lululemon’s EPS to rise 9.8% year over year to $14.02. Moreover, the company's earnings surprise history is robust, as it topped the consensus estimates in each of the last four quarters.
Among the 29 analysts covering LULU stock, the overall consensus is a “Moderate Buy.” The current rating is based on 13 “Strong Buy” ratings, two “Moderate Buys,” 11 “Holds,” one “Moderate Sell,” and two “Strong Sells.”
The overall configuration is slightly less bullish than three months ago when it had 14 “Strong Buy” ratings.
Earlier this week, Morgan Stanley (MS) raised Lululemon’s price target to $345, maintaining an “Overweight” rating, citing confidence in a modest Q3 EPS beat, reaffirmed guidance, and growth opportunities in China. The brokerage firm highlighted Lululemon’s robust expense management, compelling valuation, and potential for a strong narrative shift in fiscal 2025. Analysts see resilience in its strategy, balancing near-term stability with long-term growth, reinforcing optimism in the company’s outlook despite market challenges.
Meanwhile, yesterday, Oppenheimer lowered its target price to $380 from $445, maintaining an “Outperform” rating on LULU, ahead of Q3 results on Dec 5. The downgrade reflects sluggish top-line trends, primarily due to merchandising missteps in the domestic women’s category. However, Oppenheimer believes internal dynamics haven’t worsened and views demand for athletic apparel as stable. The brokerage firm expects Q3 results to align with Street expectations, with limited need for further revisions to fiscal year guidance.
Although LULU trades slightly above the mean price target of $319.38, the Street-high target price of $445 suggests an upside potential of 39.3% from the current levels.
