Lululemon Athletica’s stock has been on a punishing slide, now trading 48% below its all-time high, following a wave of disappointing guidance, tariff pressures, and shifting consumer sentiment. Yet, beneath the volatility, the fundamentals tell a nuanced story that long-term investors should not overlook.
The company’s first-quarter 2025 results showcased resilience amid a challenging retail landscape. Lululemon reported revenue of $2.37 billion, a 7% year-over-year increase, and earnings per share of $2.60, both narrowly beating Wall Street expectations.
However, net income slipped 2% to $314 million, and same-store sales growth came in at a modest 1%. The market’s reaction was swift and severe, with shares plunging nearly 20% in a single session after management cut its full-year earnings forecast to $14.58–$14.78 per share, citing tariff headwinds and softness in U.S. store traffic.
Despite the selloff, Lululemon’s valuation now appears compelling. The stock trades at roughly 18 times trailing earnings and 19 times free cash flow—both below the S&P 500 average and archrival Nike’s multiples.
Gross margins remain robust at over 59%, and the company generates $1.6 billion in trailing free cash flow, translating to a healthy 5% yield. Analysts’ price targets for LULU range widely, but the consensus sits around $311, implying significant upside from current levels. Some long-term forecasts even project the stock could more than double over the next five years.
Lululemon’s growth story is not over. International markets, particularly China, continue to deliver double-digit sales gains, offsetting slower growth in North America. The company’s balance sheet is strong, with $1.3 billion in cash and no debt, providing ample flexibility to invest in innovation and global expansion. New product launches and strategic pricing adjustments are helping to defend margins in the face of rising costs and competitive pressures.
While risks remain—most notably from tariffs, inventory management, and a sluggish U.S. consumer—Lululemon’s premium brand, loyal customer base, and operational discipline position it well for recovery.
For investors with a long-term horizon, the current weakness presents an opportunity to buy a high-quality growth stock at a rare discount. As the macro environment stabilizes and Lululemon adapts, the potential for renewed outperformance remains firmly in play.
