Lululemon Athletica (LULU) shareholders clearly feel uneasy with the company’s recent performance. Each quarter shows more signs of transitioning from a growth stock to a potential value play. Shares dropped by double digits after Q4 earnings, as the company provided a very conservative outlook for both FY2025 and Q1, citing weaker consumer spending as the main culprit. While this is definitely a situation worth considering, I believe investors need to distinguish between excessive caution and a real slowdown in demand for Lululemon’s products.
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Lululemon Athletica (LULU) price history since the start of 2025
Right now, it seems the market is valuing Lululemon more for its value than its growth, with growth rates reaching maturity. If Lululemon can grow from a smaller base, it could look more impressive, or at least the valuations could seem more attractive. However, I don’t think this will happen quickly, so for now, I’m staying neutral on LULU stock. At a push, I am bearish, given the confluence of factors affecting the stock.
LULU’s Sluggish Growth and Conservative Guidance Raises Concern
Although Lululemon has lost nearly a quarter of its value so far in 2025, most of this decline isn’t due to its recent performance. The concern mainly comes from the softer guidance for FY2025. Lululemon posted a beat across the board in Q4 despite somewhat weak comp sales, which grew by 3% year-over-year. This was partly offset by a 60.4% increase in gross margins, which grew by 100 basis points. For the year, Lululemon reported revenues of $10.6 billion in 2024, up from $9.6 billion in 2023, marking an annual growth of 10.4%.
Lululemon Athletica (LULU) estimated and reported earnings history
However, the FY2025 guidance suggests revenues will hit $11 billion, indicating a slowdown in growth to about 5.6%, nearly half of the 10% growth seen the previous year. Along with this slower top-line growth, the company also expects gross margins to decline by another 0.6% in FY2025. For Q1, the guidance is for a 6-7% year-over-year revenue increase, which also seems pretty conservative.
It’s also worth mentioning that Q4 guidance had already been raised in January, and analysts had sounded pretty optimistic, expecting that Lululemon might still have some room to raise Q1 guidance further after the holiday season–to no avail.
Why is LULU Struggling?
Given that the projections for FY2025 and Q1 were clearly below expectations, the key question in the investment thesis is whether LULU’s weakness lies with the broader economic environment or something specific to Lululemon.
Lululemon Athletica (LULU) vs. S&P 500 (SPY)
While Bank of America (BAC) CEO Brian Moynihan emphasized that consumer spending in the U.S. is still strong, noting that half of all Americans are spending even more than they did a year ago, the difference is likely that they’re spending on different things.
So, I don’t necessarily see overall consumer spending pointing to an impending recession. Instead, Americans seem to be forced to buy more affordable items or focus on essentials like groceries. This is evident because not only has Lululemon blamed weak consumer spending for its soft guidance, but other apparel giants, like Nike (NKE), are saying the same thing.
In reality, what’s more likely is that consumers who once bought three pairs of Lululemon yoga pants are now opting for just two.
Why Lululemon’s Tariff Risk Is Overblown (For Now)
Continuing with the macro environment, it’s worth noting that some retailers and apparel makers have adopted more conservative guidance due to concerns about tariffs impacting their margins.
However, Lululemon isn’t as exposed to these tariffs as other companies because of where it manufactures its products. Unlike others, Lululemon doesn’t produce in Mexico or Canada; it manufactures mainly in Southeast Asia, with only a small portion of production in China.
That said, I don’t think changes to tariffs, as they’re currently designed, should significantly impact Lululemon’s stock. The real concern would arise if a broader escalation of tariffs affects countries like Vietnam, which is Lululemon’s primary production and import hub. If Southeast Asia faces higher tariffs, Lululemon might have to pass on those costs to maintain its margins. It would be challenging in a climate where consumers are shifting away from premium apparel brands.
This also suggests that Lululemon’s guidance may have been intentionally cautious. Tariff concerns shouldn’t be the main reason for the company’s outlook for FY2025’s weakness.
Lululemon’s Growth to Value Shift
When it comes to Lululemon’s business, apart from the outlook for 2025, another major topic of debate lately has been the company’s growth in America. Comp sales have been fairly flat over the past couple of quarters, and Lululemon has faced growing competition from other premium apparel brands like Alo and Fury. On top of that, the company has made some missteps in design and merchandising.
Expectations for Q4 were initially low, but Lululemon managed to exceed them, staying stable instead of declining. This could be a sign that things are starting to bounce back, and we might see a steady improvement in the quality of merchandise and the freshness of product offerings, especially in the Americas.
Lululemon Athletica (LULU) revenue, earnings and profit margin history
Of course, it’s wise to be cautious, given the macroeconomic challenges and the uncertainty around consumer spending. However, investors will need to figure out whether the company is being extra careful or if there’s a genuine decline in demand because of the broader economic environment.
A central point to consider is that Lululemon’s stock is clearly transitioning from growth to value. This shift hasn’t been easy. Over the past 12 to 18 months, Lululemon’s long-term EPS growth has dropped from an average of over 20% per year for the last five years to just 10.5%.
With the company trading at a 1.77x PEG ratio, it might still be too risky to attract value investors, given the potential for further correction before the stock entirely shifts away from its high-growth narrative.
Is LULU a Good Stock to Buy Now?
There’s plenty of optimism about LULU stock among Wall Street analysts, but there’s also some caution. Of the 24 analysts who have covered the stock in the past three months, 8 have rated Lululemon as a Buy, six as a Hold, and zero as a Sell. The average price target is $388.91 per share, which suggests a 39% upside potential from the current share price.
Lululemon’s performance has been satisfactory at best. However, given that the company is transitioning from growth to value, it may take some time before valuations make investment sense. Additionally, macroeconomic headwinds are something to keep an eye on, but I believe the management team is being cautious—likely more so than necessary—to avoid further disappointment.
For these reasons, I prefer to stay on the sidelines for now, anticipating that there’s still room for Lululemon’s stock to correct as the market adjusts to the new normal of growth trends.
