5 Reasons Lululemon Stock Can Bounce Back

Key Points

• Lululemon is the worst-performing company on the S&P 500 this year.

• The stock just plunged after management slashed its EPS guidance.

• The company expects things to improve in 2026.

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

Of all 500 companies on the S&P 500, none have done worse this year than Lululemon Athletica (NASDAQ: LULU).

It's been a truly awful year for the leading athleisure and exercise apparel company, as the stock has fallen 56% year to date. It's fallen by double digits in all three of its earnings reports this year, including by 19% just last Friday, Sept. 5, as it slashed its full-year earnings per share guidance from $14.58 to $14.78 to $12.77 to $12.97.

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The company is facing challenges both internal and external. Management said that much of the reason for the reduction in guidance was because of the removal of the de minimis exemption on imports, which had allowed shipments of less than $800 to avoid tariffs. That enabled the company to ship e-commerce orders to the U.S. from Canada, where it's based. It's now reorganizing its distribution network to avoid that tax.

Additionally, there seems to be a fashion trend away from leggings, the company's trademark product, as workout clothes. Management even said that in categories like lounge and social, its product has gotten stale.

Despite those challenges, Lululemon may be down, but it's not out. Here are five reasons why the stock can recover.

Image source: Getty Images.

1. Management recognizes the shortcomings

On the second-quarter earnings call, CEO Calvin McDonald didn't avoid the company's challenges. He readily acknowledged its own product misses, noting that it "relied too heavily on some of our core franchises across lounge and social for too long."

Its balance between existing and new styles was off. When it did have new styles that resonated with its customers, it didn't have enough inventory. As a result, the company plans to make its go-to-market strategy faster, to be able to test new styles and react to demand.

It's also increasing the percentage of new styles in its merchandise, saying it would grow from 23% to 35% next spring. The company has accelerated its design process as well, so that it can cut lead times by several months on select items.

Those initiatives should mitigate the challenges facing the company, and management said they should begin to show results in 2026.

2. Business is booming in China

Lululemon's challenges have come almost entirely from the U.S. In the second quarter, comparable sales in the Americas fell 4%, and management called out the headwinds in the U.S., including the removal of the de minimis exemption.

However, in the international segment, which is defined as the world outside of the Americas, the business is soaring. Comparable sales jumped 15% in the period, and China has been a standout market for the company, with revenue up 25% in the quarter on 17% comparable sales growth.

Lululemon still has a long growth runway in China, though it's now its second-biggest market. Its success has followed that of other high-end North American brands like Apple, Nike, and Starbucks in a market known for conspicuous consumption.

3. There's still runway for new stores

Despite the challenges in the U.S., Lululemon is still a growth story. The company has opened 63 stores in the last four quarters, raising its total to 784, a growth rate of nearly 9%. In 2025, it expects to open nearly 45 stores, with new openings weighted toward China and Mexico, and complete around 35 optimizations.

Lululemon will have to improve its comparable sales growth in order to win back investors. But the pace of store openings shows that the business still has a lot of growth in front of it, even if the U.S. market is struggling.

4. It's been through large drawdowns before

Longtime Lululemon investors know the company has faced similar challenges before and come out on the other side.

During the financial crisis early in its history, the stock plunged by more than 80% as growth dried up during the recession. In 2014, the stock lost nearly 50% in the wake of a massive pant recall. However, the company eventually recovered from those setbacks and went on to set new all-time highs. There's a good chance it will do the same here over time.

5. The stock is the cheapest it's ever been

Lululemon is now the cheapest it has ever been, trading at a forward price-to-earnings ratio around 13. That's a valuation typically reserved for slow-growth companies that are mature, or even declining ones such as banks or brick-and-mortar retailers, and it implies that Lululemon's prospects are dim.

However, the company could be in much better shape in a year or two. The initiatives CEO McDonald outlined could pay off. The effect of tariffs, at least on a comparable basis, will have waned. Discretionary spending in the U.S. may have recovered from its recent lull, and its store base will be even larger.

While a recovery may take time, getting some exposure to Lululemon right now seems like a smart move for growth-minded investors.

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Jeremy Bowman has positions in Nike and Starbucks. The Motley Fool has positions in and recommends Apple, Lululemon Athletica Inc., Nike, and Starbucks. The Motley Fool has a disclosure policy.