Lululemon's Stock Continues to Be a Lemon. Can the Stock Rebound, or Should Investors Stay Away?

Core Viewpoint - Lululemon Athletica's stock has significantly declined, with shares more than halved in 2025, following a disappointing fiscal Q2 earnings report [1] Financial Performance - Fiscal Q2 revenue increased by 7% year over year to $2.53 billion, while adjusted earnings per share (EPS) fell by less than 2% to $3.10, surpassing analyst expectations of $2.88 EPS on $2.54 billion sales [4] - North American operations are struggling, with Americas' revenue up 1% to $1.8 billion and same-store sales down 4%, while international revenue surged 22% with comparable-store sales up 15% [5] - Men's category revenue rose by 6%, women's sales increased by 5%, and accessories sales climbed 15% [6] Challenges and Strategic Adjustments - Management acknowledged mistakes, citing increased competition in the athleisure market and stale product lines [2] - The company plans to collaborate with vendors to expedite design processes and reduce lead times, with anticipated improvements in performance apparel market share [3] - Gross margin decreased by 110 basis points to 58.5%, and inventory levels rose by 21% to $1.7 billion, indicating potential future challenges [6][7] Future Outlook - Lululemon has lowered its sales guidance to $10.85 billion to $11 billion, reflecting growth of 2% to 4%, and adjusted EPS guidance to $12.77 to $12.87, down from previous estimates [8] - For fiscal Q3, the company expects sales between $2.47 billion and $2.5 billion, indicating growth of 3% to 4%, with adjusted EPS projected between $2.18 and $2.23 [9] Market Position and Valuation - Despite challenges, Lululemon maintains strong margins, indicating effective full-price selling, and is experiencing growth in international markets, particularly in China [12] - The company trades at a forward price-to-earnings (P/E) ratio of around 11 times next year's estimates, significantly lower than Nike's forward P/E of about 30 times [13]