SwingTrader
Stock & Bond Market Commentary
Lululemon no longer looks worth owning after guiding both revenue and earnings down. Consumer discretionary is dead, and AI is holding up the entire economy, though for how long is unclear. Long-dated Treasuries are the better trade now, even as @epictrades1 quotes Michael Burry saying Lululemon is his largest position and he would buy more under $100. x.com x.comÂ
Lululemon is not worth bottom-fishing even though the bad news will eventually be priced in, because forward estimates keep falling and a bottom is hard to time before fundamentals bottom. The business is not a zero: its stores are still busy, if less than before. There are better places to look for a bargain. x.com x.com x.comÂ
Lululemon is no bargain at $99 and an 8x P/E, with revenue shrinking 4% and guidance slashed in two consecutive quarters. x.comÂ
Lululemon's 18% premarket drop looks like an overreaction given its improving margins. x.comÂ
Lululemon's guidance is the problem: the stock is dumping after mixed results that included a strong EPS beat. The chart had already signaled not to buy yet. x.com x.comÂ
Lululemon is not that tempting even after falling from $500 to about $100, because cheap does not mean buy. At about 1x sales the market prices in roughly zero growth, and analysts expect about $13 of EPS by 2029; at an 8x P/E that is only about $104. Agreeing with @HKIStrategies that the stock may simply move sideways for years, that would still mean losing money to inflation. x.com x.comÂ
Lululemon is cheap at around 11x earnings with gross margins above 50%, while many people, including the founder, are pushing for a turnaround. Sales growth is tiny, but the balance sheet is solid and the company makes an interesting acquisition target. The reported collapse of talks with founder Chip Wilson, per WSJ via @DeItaone, looks good for the stock: Wilson may try to take it private or bring in a strategic buyer. x.com x.comÂ
Lululemon is a stock to avoid around earnings, good or bad, as apparel names almost always are. Too many investors were fooled by its compounder story coming out of Covid. x.comÂ
Lululemon is a classic value trap: EPS guidance fell by a third, so a lower share price is no cheaper, and with EPS likely flat or down for 2-3 years it may need to test the low $80s. Dozens of influencer-led apparel brands selling through Shopify, plus Alo, Vuori and GymShark, offer better products at lower prices without its costly store base. Its mediocre products at premium prices cannot win that fight, and a quick turnaround is unlikely. x.com x.com x.com 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 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
