What's Wrong With Lululemon Stock?

Core Viewpoint - Lululemon's stock has significantly declined, trading down 64% from all-time highs, primarily due to increased competition in the athleisure market and slowing revenue growth in North America [2][4]. Group 1: Revenue Growth and Market Position - Lululemon's revenue growth has slowed to 7.32%, marking a five-year low, following a pandemic-driven boom in athleisure [4]. - Despite the overall decline in athleisure spending, Lululemon has managed to grow 4% year over year in constant currency in North America [5]. - The company has maintained high profit margins, with an operating margin above 23% over the last 12 months, close to a five-year high [6]. Group 2: Management Strategy and Capital Allocation - Lululemon is focusing on international expansion, with revenue in mainland China growing at 22% year over year, and is launching its first flagship store in Milan [7]. - The company has repurchased $1.77 billion in stock over the last 12 months, equating to 8% of its current $22 billion market cap, which is expected to enhance earnings per share (EPS) growth [8]. Group 3: Valuation and Future Outlook - Lululemon's stock trades at a price-to-earnings (P/E) ratio of 12.6, a five-year low, significantly lower than its P/E ratio of 90 in 2021 [10]. - Even with single-digit revenue growth, stable margins and a robust buyback program can lead to double-digit EPS growth over the long term [11]. - The current valuation presents an appealing opportunity for investors confident in Lululemon's ability to capture market share in athleisure and expand internationally [12].