Why Lululemon Athletica Stock Crashed Today

Key Points

• Lululemon Athletica missed on sales but beat on earnings in Q2.

• Yet sales grew while earnings declined.

• 10 stocks we like better than Lululemon Athletica Inc. ›

Lululemon Athletica (NASDAQ: LULU) stock tumbled 15% through 10:05 a.m. ET Friday after the company reported the tiniest of sales misses -- and an earnings beat -- last night.

Heading into the yoga clothier's Q2 report, analysts forecast Lululemon would earn $2.85 per share on $2.54 billion in sales. Earnings beat, though, at $3.10 per share, and revenue missed by only $10 million at $2.53 billion.

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Lululemon Q2 earnings

What's wrong with these numbers? Honestly, not much. Same-store sales grew a modest 1% and total revenue was up a respectable 7% for the quarter. Earnings did decline by $0.05 year over year, but this was a smaller decline than expected.

And CEO Calvin McDonald says he saw "positive momentum overall in our international regions in the second quarter." Granted, U.S. business results were disappointing. But McDonald says he's "confident in the opportunity ahead and plans we have in place to drive long-term growth."

Is Lululemon stock a buy?

And yet, turning to guidance, Lululemon already seems to be bracing for a slowdown. In Q3, management forecasts no more than 3% or 4% sales growth (so half as fast as in Q2), and actually a bit less revenue than Q2. Earnings per share, furthermore, will range from only $2.18 to $2.23 -- a huge sequential drop.

For the full year, Lululemon predicts sales of $11 billion or less (no more than 4% growth), and earnings per share between $12.77 and $12.97. Taken at the midpoint, that's $12.87 in earnings on a $173 stock -- a P/E ratio of only 13.5.

Granted, growth looks slow right now, but for a strong brand name like Lululemon, I think the valuation is attractive, and it could be a buy here.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.