Lululemon Stock: Buy The Dip Or Wait It Out?

Core Viewpoint - Lululemon's stock has seen a significant decline of 56% year-to-date, contrasting with a 10% rise in the S&P 500, raising questions about whether the market's reaction is excessive or if there are fundamental threats to growth and profitability [2] Financial Performance - Lululemon reported an EPS of $3.10, exceeding estimates of $2.87, but revenue slightly missed expectations at $2.53 billion compared to projections of $2.54 billion [3] - The company lowered its full-year revenue forecast to $10.85 billion–$11.0 billion from a previous range of $11.15 billion–$11.3 billion, and EPS guidance was adjusted down to $12.77–$12.97 from $14.58–$14.78, which triggered a selloff in the stock [4] Market Dynamics - U.S. same-store sales decreased by 4% in Q2 FY 2025, indicating weakness in the domestic market, while same-store sales increased by 17% in China and 12% in other international markets [5] - The elimination of the U.S. de minimis exemption will lead to approximately $240 million in additional import duties, with an overall operating cost impact estimated at around $320 million by 2026 [6] Strategic Initiatives - To combat brand fatigue, Lululemon plans to refresh its product offerings, increasing the proportion of new styles from 23% to 35% by next spring [6] Financial Strength - The company ended the quarter with $1.2 billion in cash, representing 15.4% of total assets, against $1.7 billion in lease liabilities, resulting in a conservative debt-to-equity ratio of 8.3% [7] - Lululemon has no traditional debt on its balance sheet and substantial liquidity, positioning it well to handle short-term disruptions [7] Valuation Perspective - Lululemon is currently trading at 14 times trailing earnings, a discount compared to its historical average and the market's 24 times multiple, despite maintaining strong margins and free cash flow [2]