Should You Buy Lululemon Stock at a Once-in-a-Decade Valuation?

Core Viewpoint - Lululemon's brand performance is better than initially feared, despite facing competitive pressures and slowing growth [1][3] Group 1: Financial Performance - Lululemon's revenue for Q2 of fiscal 2025 grew by 7% year over year, reaching $2.5 billion, but management's guidance suggests a growth rate of only 2% to 4% for the full year [6] - The stock is currently trading at a valuation of less than 12 times earnings, which is considered a low entry point if future performance improves [3][5] - The company's inventory levels are rising, which poses a risk to profitability if sales do not improve [8][10] Group 2: Market Position and Competition - Lululemon is experiencing competitive pressures, with rival brand Vuori reporting over 20% growth in 2024, while Lululemon's net revenue growth was only 10% during the same period [7] - In its largest market, the Americas, net revenues increased by only 1% year over year, with comparable sales declining by 4% [8] Group 3: Customer Loyalty and Brand Strength - Lululemon has a strong Net Promoter Score (NPS) of 41, indicating solid customer loyalty, particularly among long-term users [11][12] - The brand's popularity is highest among customers who have used its products for five to ten years, suggesting a loyal customer base that supports profit margins [12][13] - While the company struggles to attract new customers, retaining loyal customers is viewed as a more sustainable strategy for long-term growth [13] Group 4: Profitability and Future Outlook - Lululemon's gross and operating margins remain above their five-year averages, indicating resilience in its business model [14] - Despite a significant stock sell-off of 55% in 2025, Lululemon is not in crisis and may still represent a good long-term investment opportunity [16]