Is Lululemon Stock a Buy or a Risky Bet Amidst Financial Pressure and Management Changes?

TradingKey - An athleisure company, Lululemon Athletica（LULU）, has built a very successful niche in the fashionable athletic wear category. 

But, the gains they have had over the last decade and a half have been well wiped out by the rapid decline of their stock by over 70% since late 2023, and by more than 50% over the last five years and by more than 30% in the year 2026. 

As the North American market, which was generating much of its revenue at the time, has slowed due to market saturation and increased competition, as well as product criticism and less product innovation, Lululemon is faced with an evolving and dramatically increased expense model and still with decreased margins.

What Lululemon Is Today: A Premium Brand Facing A Reset

The brand maintains its status as a leader in U.S. premium activewear, particularly among women, which allows the company to have a solid and loyal customer base. The company also has ample opportunity to expand internationally, especially in China. 

Customer loyalty will give the company time to grow internationally. The company has identified the need to improve product innovation, the time to market, and refinement of assortment planning, and has indicated that they are addressing issues with merchandising and execution. 

The Company is investing in design and quality as well as upgrading its digital capabilities (including A.I. tools) and brand activations to rebuild sales momentum that was lost due to discounting and an adverse impact on line pricing power. All of these measures will require time to achieve scale and restore pricing power to the North American market, where discounting diluted the premium image and decreased margin.

How LULU Stock Lost Its Momentum

There have been noticeable signs in the company's operating trends. During Q4FY2025, they experienced modest revenue growth and an earnings beat; however, demand in North America was pretty dull with flat-to-down sales and comparable store sales continuing to slide due to large markdowns.

The company is experiencing increased pressure on its margins due to both tariffs and continued discounting. Increased spending on marketing, store operations and technology has all led to deleverage on expenses. This combination of factors is what caused the company to have a much higher cost of sustaining its growth as well as causing investors to lose patience as the stock price has significantly underperformed compared to both the Textile – Apparel industry and the Consumer Discretionary sector over the last three months, even though the S&P rose slightly.

After Calvin McDonald, LULU's former chairman and CEO, stepped down late last year, the company began searching for a new chief executive officer to lead LULU during its current phase of business growth. 

With great anticipation from the investing community, LULU announced the selection of Heidi O'Neill to be its new chief executive officer.

The market's response to LULU's announcement of its new chief executive officer was far less than some may have anticipated; in fact, LULU's stock price dropped by approximately 5% immediately following the announcement, and continued to decline by an additional 13% at the close of trading on the following day—representing a decline of nearly $2 billion in LULU's market capitalization value. 

By way of comparison, following Calvin McDonald’s announcement of his resignation as chief executive officer in December, the stock price of LULU increased significantly. Overall, this example demonstrates that LULU's current and potential investors would prefer certainty about the direction of LULU's business, rather than an individual with name recognition appointed as a chief executive officer.

Financial Trends And Margin Math Behind LULU Stock

The near-term model has gone through a lot of pain from the external costs associated with adjusting to the tariffs, coupled with the internal costs associated with restructuring the US e-commerce supply chains as a result of the end of the de minimis exemption. 

Comp sales have been impacted by deeper discounting in North America, which has also negatively impacted sales through the first half of this fiscal year. While spending on marketing, stores and technology support the long-term strategy, they have caused the company to deleverage; therefore, obscuring the benefit of relatively stable top-line sales growth. 

Consensus estimates reflect the caution around this stock; both Zacks and Thomson Reuters lowered their 2026 and 2027 estimates by 0.4% and 0.3%, respectively, in the past month. Analyst estimates for 2026 are for revenue growth of approximately 3.5% YOY and earnings down approximately 6.9%, indicating that continued margin compression will continue to impact profitability, but that margin compression should abate later in the year. For 2027, analysts estimate revenue growth of approximately 5.6% and earnings growth of approximately 8.9%, which assumes some progress has been made in selling full-price and controlling inventory levels.

Long-Term Fundamentals: What Still Works For Lululemon

While some may see recent headlines as a negative indicator for business, the fact remains that Lululemon’s primary brands have continued to hold very strong equity in the marketplace. 

The future of business looks bright and especially when compared to recent years—Lululemon has a great deal of potential for international growth, including significant opportunities in China. 

The Company’s goal is to create new product innovations, including new designs and better quality, while using advanced digital capabilities such as artificial intelligence, to give us better forecasting abilities on demand and to engage more effectively with our customers. These new capabilities will help the company execute based on a strategy that has been successful for us in the past and has been centered around innovation & premium brands. 

The company challenge today is even greater because it needs to rebuild its full-price momentum after having a period of excessive markdowns. 

Known Risks That Could Keep Pressure On LULU

The potential risks of this business model are very real and should not be regarded as only a theoretical problem. Continued reliance on markdowns could prolong uneven demand across North America. 

Rerouting supply chains could have an impact on product margins beyond what is currently forecasted due to additional tariff costs. 

The number of competitive brands is increasing, taking advantage of expanded shelf space in wholesales and shortened design cycle lengths. 

Past controversies regarding quality and toxic chemicals leave a highly reputational overhang, requiring continued diligence and focus on both product and communication, especially with a founder who has publicly criticized the company for mistakes made over the last few years. 

Guggenheim's Siegel suggests that a necessary revenue reset may create more pressure on the P&L before savings materialize, which supports EPS consensus trends.

Should You Buy LULU Stock Now?

For those who are looking at long-term investment opportunities, the debate about whether the current multiple reflects a North American reset that will be challenging in the near future is still open. There are positive signs from the strong performance outside of North America and product innovation, but there are no positive signs of near-term price appreciation based on both the revision of the estimates and weak price momentum.

If Lululemon can show incremental improvements by June and sustain that improvement through 2027, a rerating of the stock is possible; otherwise, LULU stock will probably remain stuck at the current level of caution and accountability.