Lululemon Stock: Too Cheap to Ignore?

Core Viewpoint - Lululemon Athletica's stock has significantly declined due to missed earnings estimates and a reduction in full-year guidance, primarily driven by challenges in the U.S. market, leading to a year-to-date drop of 56% [1] Financial Performance - Revenue for the quarter increased by 7% to $2.53 billion, slightly below the consensus estimate of $2.54 billion, with comparable sales up only 1% [2] - Comparable sales in the Americas decreased by 4%, while international sales surged by 15%, driven by a 17% growth in China [2] Market Challenges - The U.S. market, being the largest for Lululemon, is facing multiple challenges, including tariffs and the end of the de minimis exemption on e-commerce, which contributed to the cut in EPS guidance from $14.58-$14.78 to $12.77-$12.97 [3][7] - There are indications that the popularity of yoga pants is waning, with consumers shifting towards baggier garments, posing a longer-term challenge for the company [5] - Weak consumer sentiment and discretionary spending in the U.S. are also impacting performance, exacerbated by fears of tariffs and a potential recession [6] Competitive Landscape - Lululemon is not alone in facing difficulties, as other discretionary brands like Deckers and Nike have reported declines in U.S. sales [8] - The restaurant industry is also experiencing similar challenges, which may provide some context for Lululemon's struggles [9] Management Response - CEO Calvin McDonald acknowledged the disappointing U.S. results and emphasized the need for innovation in product offerings, planning to increase the percentage of new styles from 23% to 35% [10] - The company is accelerating its go-to-market and design processes to better respond to demand trends [10] Investment Consideration - Despite the challenges and guidance cut, Lululemon's stock appears undervalued, trading at a forward P/E of 13, comparable to slow-growth companies [11] - The impact of tariffs is expected to be short-term, while the company's diversified product range and established brand may provide a competitive advantage [12] - For patient investors, current stock valuation may present a buying opportunity, as it trades at half the valuation of the S&P 500 [13]