Is Lululemon Stock Finally in the Stretch Zone?

For more than a decade, Lululemon has been one of retail’s great success stories. Its yoga pants became a cultural phenomenon, its stores a lifestyle hub, and its stock a compounding machine.

But shares have lost nearly 40% in the past year, their steepest drop since 2008, as tariffs, slowing demand, and new rivals pressure the business.

So, is this dip a chance to buy a best-in-class brand on sale, or a sign its growth story is cooling off?

Key Points

• Despite a 40% share price drop, Lululemon remains one of the most profitable retailers on the planet with industry-leading margins and returns.

• New import tariffs and rising rivals like Vuori and Alo Yoga are crimping U.S. growth, though international markets are picking up the slack.

• The brand’s pricing power, loyal customer base, and strong balance sheet suggest LULU can rebound, but investors may need patience before the next stretch higher.

Revenue Streak Few Retailers Can Match

Lululemon has grown revenue for 21 consecutive quarters, a streak most retailers can’t match.

Sales have popped from just over $4 billion in 2020 to almost $11 billion today, powered by data-driven expansion and a direct-to-consumer model that now makes up over half of total revenue.

Profitability remains strong even as growth slows. Net income climbed to $1.8 billion over five years, though the last two quarters have dipped.

Still, with mid-teen net margins, 42% returns on equity, and 24% returns on assets, roughly 10× the sector average, Lululemon is among the most efficient operators in retail.

Tariffs, Competition, and a Cautious Consumer

The company’s biggest new headwind is tariffs. The U.S. has closed the “de minimis” loophole that once let sub-$800 imports enter duty-free, raising costs on apparel shipped from abroad. Management expects tariffs to slice roughly $200 million off gross profit this year, leading to softer guidance.

Meanwhile, younger brands like Vuori and Alo Yoga are gaining traction with faster product drops and trend-driven designs. Combine that with inflation-strained shoppers, September’s 3% CPI reading still outpaces wage growth, and Lululemon’s core North American consumer is simply buying less.

Q2 Results Show the Shift

Revenue grew 7% year over year in Q2, but North American growth stalled and was nearly flat.

Comparable sales in the region fell 4%, while Asia jumped 34% and China over 50%. That international momentum is vital and Lululemon has fewer than 125 stores in China versus 800 in North America, giving it years of runway abroad.

For fiscal 2025, management expects just 4%–6% revenue growth and EPS of $12.77–$12.97, down from $14.61 last year.

Share buybacks of $278 million in Q2 help support confidence but won’t move the needle near term.

Valuation Is Reasonable, Not Cheap

At roughly 12× earnings and 2× sales, Lululemon trades near decade-low valuations.

The P/E is well below the 17× industry average, though its higher margins justify a modest premium on sales.

Analysts peg fair value at near $195 per share, almost 10% upside, and sentiment has cooled sharply. What was once a clear “buy” has become a cautious “hold.”

The Bottom Line

Lululemon’s brand, margins, and international potential remain world-class, but the near-term setup is tough. Tariffs, competition, and a stretched consumer are likely to cap growth for now.

For long-term holders, LULU still deserves a spot in the portfolio. For new buyers, though, it may be wiser to wait for clarity on trade policy and consumer spending.

Lululemon isn’t broken, it’s just pausing for a deep breath before the next pose.