M Mohan
Private Equity at IncVangal, Former Microsoft Ventures Director
Lululemon's deterioration is deeper than the headline numbers show and looks like a brand problem, not just macro. Revenue fell 5% in constant currency to $2.42B with comps down 10%, and the 60.5% gross margin included 560bp of tariff refunds, masking a ~355bp underlying decline. The Americas fell 8% and even China mainland comps fell 8%. FY2026 guidance was cut to a 5-7% revenue decline and EPS of $9.48-9.73, versus $13.26 in 2025. x.comÂ
Lululemon's business has not found its bottom, even after the stock fell nearly 18% after earnings to around $100. Revenue fell 4% to $2.42B, global comparable sales dropped 9% and Americas comps fell 12%. The bigger issue is the outlook, with FY26 revenue now expected to decline 5-7% and EPS guidance cut to $9.48-$9.73. x.comÂ
Lululemon's 20% drop does not make it a buy, because its brand is losing ground in its biggest markets and guidance collapsed. Q2 EPS beat on margins, but constant-currency comps fell 10%, with the first declines on record in China and Rest of World, after brand damage from the proxy fight, a Texas PFAS probe and a yoga event backlash. Management cut fiscal 2026 EPS to $9.48-9.73 on sales down 5-7%, and guided Q3 EPS to $0.93-0.98, about 60% below the Street's $2.37. x.comÂ
Lululemon's 18% premarket drop looks like an overreaction given its improving margins. x.comÂ
Lululemon is a value trap with no sign its business decline is reversing. Comparable sales in the Americas fell 10% in Q2 2026, worse than Nike's, and management now expects full-year revenue to fall 5-7%, with consensus estimates likely to be cut. Earnings are projected to drop to $1.3 billion by 2028, about 30% below 2025. The trailing P/E of 9x looks cheap, but the forward P/E is higher at 11x as earnings fall, despite the stock losing 75% of its peak value. x.comÂ
Lululemon is probably going lower because sales and margins are imploding while inventory grows, and a new unproven CEO is coming in. Q3 guidance calls for revenue down 10-11%, North America down mid-teens and inventory up low single digits; full-year revenue should fall 5-7% with inventory up mid single digits. Even granting $6 of annualized EPS versus a ~$4 run rate, 12x for an off-trend retailer implies about $70, versus $100 after an 18% drop. x.com x.comÂ
Lululemon is an 800lb gorilla worth defending despite bad management and the politics around its skin-tight leggings. x.comÂ
Lululemon's demand keeps deteriorating, and takeover hopes are a risky reason to hold it. It cut full-year guidance again, with Q2 revenue down 4%, Americas sales down 8% and comparable sales down 9%, sending shares below $100 for the first time since 2019. Michael Burry calls it his largest position and sees a possible private equity takeover, but a Stage 4 decline can last longer than expected, as PayPal holders learned when Stripe chose not to bid. x.com x.comÂ
Lululemon risks following Nike's path of margin collapse from peak valuation. Lululemon peaked at 14x EV/sales and 82x forward earnings in 2020, while Nike's EBITDA margin has collapsed from 18% in 2021 to 10.7% today. x.comÂ
lululemon looks cheap at about 5x cash earnings, versus the 12x retailers usually get. Fair value sits at $221.42-$281.80, or 12x next year's cash earnings give or take 12%, leaving the $101.30 stock 54% below the low end. This is a levels-only read off reported earnings and revenue estimates, with no fundamental work. x.comÂ
Lululemon's problem is its pricing, not a weak consumer. Shoppers are fine but aren't buying its products because the prices no longer make sense, which spells trouble for its margins. x.comÂ
