Down 49% This Year, Lululemon Could Sink Even Deeper -- Here's Why Wall Street Analysts Are Downgrading the Stock

Core Viewpoint - Lululemon Athletica is facing challenges due to the failed launch of its Breezethrough leggings, leading to a significant decline in stock price and analyst ratings, but the company remains a strong business with potential for recovery [1][2][3]. Financial Performance - Lululemon generated nearly $10 billion in trailing-12-month revenue and expects to generate between$10.7 billion and $10.8 billion in fiscal 2024, indicating a robust business foundation [3]. - The company's price-to-sales (P/S) valuation has been cut in half recently, reflecting a dramatically reduced growth rate [3]. Product Innovation - The Breezethrough lineup was made with a new fabric called hydrogen yarn, developed in collaboration with LanzaTech, but the product's design was criticized, leading to its removal from shelves [4]. - Management plans to redesign and relaunch the Breezethrough line, as the issues appear to be design-related rather than fabric-related [4]. Growth Outlook - Management had previously guided for better sales growth in the second half of fiscal 2024, but the removal of the Breezethrough line may hinder achieving those goals [4]. - Despite current challenges, Lululemon is considered a long-term investment opportunity due to its profitability, lack of debt, and historical growth [5]. Market Sentiment - The stock is currently trading at approximately 21 times its trailing earnings, which is the lowest ratio in over 10 years, but the apparel sector typically commands lower valuations [5]. - There is a possibility that Lululemon's stock may continue to decline in the short term as investor interest wanes, but the company is expected to remain financially stable and could eventually find ways to reaccelerate growth [6].