Lululemon (ticker symbol LULU) has seen its stock cut in half over the past year. That kind of drop naturally raises the question: is this premium athletic wear company now a bargain, or is there more pain ahead? Let’s dive into the business, financials, and valuation to see if Lululemon deserves a spot in your portfolio.
Business Overview
Lululemon sells athletic wear for both men and women, along with sneakers. The company operates through two main channels: direct-to-consumer via its website and company-owned stores. As of the most recent filing, Lululemon has 784 stores, up 17 from the prior fiscal year. That’s a sign of steady expansion.
Geographically, the majority of revenue comes from the United States, accounting for 61%. The rest is spread across international markets, where growth potential remains strong. Beyond selling apparel, Lululemon has built a premium brand by offering unique experiences, such as free yoga classes in select stores. These initiatives foster loyalty and community engagement, helping the company stand out in a crowded industry.
Growth Strategy
Management has outlined three key pillars for growth:
- Product innovation: Lululemon excels at incorporating customer feedback quickly. Unlike competitors that operate on seasonal cycles, Lululemon shortens turnaround times, updating fabrics, adding features like pockets, and refreshing designs rapidly.
- Guest experiences: Free yoga classes, rewards programs, and community events keep customers engaged and connected to the brand.
- Market expansion: The company continues to open new stores, with 17 added recently, and is pushing into international regions where margins may be lower but growth opportunities are significant.
This multi-pronged approach positions Lululemon for long-term growth, especially if international markets continue to deliver double-digit revenue increases.
Financial Performance
Revenue growth has been solid. In fiscal year 2025 (ending January 2025), Lululemon posted about 10% growth overall. International markets were the star performers, with 34% growth year-over-year, while China contributed 25% growth. Despite the stock’s steep decline, the business itself continues to expand.
Margins are another bright spot. Gross profit margins came in at 59%, which is stronger than both Nike and Adidas. Operating profit margins also outpaced those competitors, underscoring Lululemon’s ability to maintain premium pricing and efficient operations.
| Metric |
Lululemon |
Nike |
Adidas |
| Gross Profit Margin |
59% |
Lower |
Lower |
| Operating Margin |
Higher than peers |
Lower |
Lower |
These figures highlight that Lululemon isn’t just surviving in a competitive industry—it’s thriving economically.
Headwinds and Risks
Of course, no company is without challenges. For Lululemon, tariffs are a major concern. Since most of its products are manufactured abroad, tariffs imposed by the U.S. government weigh on profit margins and sales. Many companies in the industry have responded by passing costs onto consumers, but this strategy has limits. Raise prices too quickly, and customers may walk away.
Another risk is the lack of patent protection. Competitors can replicate Lululemon’s designs and sell similar products at lower prices. This makes brand loyalty and customer engagement critical to sustaining long-term success.
Net income has grown but remains volatile compared to revenue. Profit margins, while better than peers, face downward pressure. Investors should expect some fluctuations in profitability as tariffs and competition continue to play out.
Cash Flow and Capital Expenditures
Capital expenditures have increased as Lululemon invests in new stores and upgrades existing ones. This spending has put pressure on free cash flow in the short term. However, analysts expect free cash flow to ramp up in the coming years, suggesting that current investments could pay off down the line.
| Year |
Free Cash Flow (Historical) |
Free Cash Flow (Analyst Estimate) |
| Recent Years |
Volatile, with pullbacks and jumps |
Trending upward |
| Future Outlook |
N/A |
Strong ramp expected |
Looking at the broader trend, analyst estimates align with a long-term growth trajectory, even if short-term volatility persists.
Valuation
Using analyst estimates, fair value for Lululemon stock comes in around $186 per share. That’s decent, but not a screaming bargain. What’s more compelling is the company’s price-to-earnings (PE) ratio. At about 11x, Lululemon’s PE multiple is near decade lows. Historically, the stock has traded at much higher multiples, reflecting its premium brand and growth profile.
| Valuation Metric |
Current |
Historical Trend |
| Fair Value Estimate |
$186/share |
In line with growth |
| PE Ratio |
~11x |
Lowest in 10 years |
This suggests the market may be overly pessimistic, especially given Lululemon’s strong margins and international growth.
Shareholder Returns
Lululemon has also been buying back stock, as evidenced by a declining trend in shares outstanding over the past decade. Share repurchases are a positive sign, as they return value to shareholders and signal management’s confidence in the company’s future.
Final Verdict: Buy, Hold, or Sell?
So, what should investors do with Lululemon stock? Here’s the takeaway:
- The company is fundamentally strong, with superior margins and steady revenue growth.
- International expansion offers long-term upside, though U.S. tariffs and competition pose near-term risks.
- Valuation looks attractive compared to historical levels, but fair value estimates suggest the margin of safety isn’t huge yet.
For now, Lululemon is best viewed as a hold. If you already own the stock, patience could pay off over the next decade as buybacks and international growth compound. If you’re looking to buy, waiting for a slightly bigger discount could provide a safer entry point.
https://youtu.be/4qFOsjtYr6E?si=oKD9GtjC0BDzTYau
Lululemon (ticker symbol LULU) has seen its stock cut in half over the past year. That kind of drop naturally raises the question: is this premium athletic wear company now a bargain, or is there more pain ahead? Let’s dive into the business, financials, and valuation to see if Lululemon deserves a spot in your portfolio.
Business Overview
Lululemon sells athletic wear for both men and women, along with sneakers. The company operates through two main channels: direct-to-consumer via its website and company-owned stores. As of the most recent filing, Lululemon has 784 stores, up 17 from the prior fiscal year. That’s a sign of steady expansion.
Geographically, the majority of revenue comes from the United States, accounting for 61%. The rest is spread across international markets, where growth potential remains strong. Beyond selling apparel, Lululemon has built a premium brand by offering unique experiences, such as free yoga classes in select stores. These initiatives foster loyalty and community engagement, helping the company stand out in a crowded industry.
Growth Strategy
Management has outlined three key pillars for growth:
This multi-pronged approach positions Lululemon for long-term growth, especially if international markets continue to deliver double-digit revenue increases.
Financial Performance
Revenue growth has been solid. In fiscal year 2025 (ending January 2025), Lululemon posted about 10% growth overall. International markets were the star performers, with 34% growth year-over-year, while China contributed 25% growth. Despite the stock’s steep decline, the business itself continues to expand.
Margins are another bright spot. Gross profit margins came in at 59%, which is stronger than both Nike and Adidas. Operating profit margins also outpaced those competitors, underscoring Lululemon’s ability to maintain premium pricing and efficient operations.
These figures highlight that Lululemon isn’t just surviving in a competitive industry—it’s thriving economically.
Headwinds and Risks
Of course, no company is without challenges. For Lululemon, tariffs are a major concern. Since most of its products are manufactured abroad, tariffs imposed by the U.S. government weigh on profit margins and sales. Many companies in the industry have responded by passing costs onto consumers, but this strategy has limits. Raise prices too quickly, and customers may walk away.
Another risk is the lack of patent protection. Competitors can replicate Lululemon’s designs and sell similar products at lower prices. This makes brand loyalty and customer engagement critical to sustaining long-term success.
Net income has grown but remains volatile compared to revenue. Profit margins, while better than peers, face downward pressure. Investors should expect some fluctuations in profitability as tariffs and competition continue to play out.
Cash Flow and Capital Expenditures
Capital expenditures have increased as Lululemon invests in new stores and upgrades existing ones. This spending has put pressure on free cash flow in the short term. However, analysts expect free cash flow to ramp up in the coming years, suggesting that current investments could pay off down the line.
Looking at the broader trend, analyst estimates align with a long-term growth trajectory, even if short-term volatility persists.
Valuation
Using analyst estimates, fair value for Lululemon stock comes in around $186 per share. That’s decent, but not a screaming bargain. What’s more compelling is the company’s price-to-earnings (PE) ratio. At about 11x, Lululemon’s PE multiple is near decade lows. Historically, the stock has traded at much higher multiples, reflecting its premium brand and growth profile.
This suggests the market may be overly pessimistic, especially given Lululemon’s strong margins and international growth.
Shareholder Returns
Lululemon has also been buying back stock, as evidenced by a declining trend in shares outstanding over the past decade. Share repurchases are a positive sign, as they return value to shareholders and signal management’s confidence in the company’s future.
Final Verdict: Buy, Hold, or Sell?
So, what should investors do with Lululemon stock? Here’s the takeaway:
For now, Lululemon is best viewed as a hold. If you already own the stock, patience could pay off over the next decade as buybacks and international growth compound. If you’re looking to buy, waiting for a slightly bigger discount could provide a safer entry point.
https://youtu.be/4qFOsjtYr6E?si=oKD9GtjC0BDzTYau