The Last Time Everyone Gave Up on Lululemon

In the fall of 2015, a company that had been printing 25% operating margins and compounding shareholder wealth for a decade suddenly found itself being talked about in the past tense.

The stock had fallen from $80 to $38 in eighteen months. The founder had made embarrassing public remarks about customer body types. Revenue growth was decelerating pretty rapidly and nalysts who had spent years upgrading the stock were quietly removing price targets.

The consensus was that the brand had peaked.

By 2021, Lululemon traded above $480. That 2015 bottom turned out to be one of the great second-chance opportunities in retail history.

I’m not saying history repeats.

But there are moments when a brand gets written off before it’s actually broken.

Right now, in March 2026, we may be living through another one.

How Does the Company Make Money?

Lululemon designs, manufactures, and retails premium technical athletic apparel.

This includes pants, shorts, tops, jackets, footwear, and accessories. The brand is primarily for women, but with a growing men’s segment.

It sells direct-to-consumer through 811 global stores and an e-commerce platform that generated $1.9 billion in digital revenue in Q4 fiscal 2025, per the March 17 earnings release.

Direct-to-consumer means no wholesale margin haircut to department stores. The company captures full price on every unit it sells.

Revenue for fiscal 2025 was $11.1 billion. The Americas still make up roughly 74% of total revenue, but international, China Mainland in particular, is growing fast and becoming a genuine second engine.

Why This Stock, Why Now

1. The valuation reset is historically extreme.

Lululemon traded between 35x and 50x forward earnings from 2017 through 2022. The premium was justified. LULU was turning in consistent 20%-plus revenue growth, operating margins above 25%, with no debt, and powerful brand loyalty that kept customers paying full price without flinching.

Today, following a 51% decline from its 52-week high, LULU trades at approximately 11x trailing earnings - its lowest multiple in over a decade.

The business hasn’t deteriorated by 50%. Margins are under pressure, but the company still generated $587 million in net income in a single quarter. It ended fiscal 2025 with $1.8 billion in cash and zero debt.

A brand this durable hasn’t traded this cheap in more than ten years.

That doesn’t make it a buy by itself, but it does mean the risk-reward calculus looks very different from 2022.

2. International is a genuine growth engine, not a bridge.

The Americas narrative has been relentlessly negative, and fairly so. U.S. comparable sales have been flat to declining for nearly two years. But the company’s international segment tells a different story.

China Mainland comparable sales grew 28% in Q4 fiscal 2025 and 30% for the full fiscal year. Management guided for 20% China growth and mid-teens growth for the rest of the world in fiscal 2026. International revenue grew 22% for the full year.

Lululemon is expanding into India via a Tata CLiQ partnership and adding new franchise markets including Greece, Austria, Hungary, Romania, and India in 2026. The company has a 160-plus store footprint in China alone.

This is a company with a broken domestic quarter running alongside a working global thesis.

3. The product refresh is real and measurable.

The 2024 “Breezethrough” legging recall, a design flaw that forced a full product pull within weeks of launch, was genuinely damaging. It cost the company market share and management credibility. The departure of Chief Product Officer Sun Choe created an innovation vacuum that faster-moving competitors exploited.

Management’s response was a 35% new style penetration in the spring 2026 North American assortment, up from 23% in 2025, per the Q4 earnings call transcript.

The ShowZero sweat-concealing fabric technology launched in March 2026. The Unrestricted Power line is in market with early positive guest response noted by management.

A brand that had fallen into pattern repetition is deliberately injecting newness. This transition takes quarters, not weeks. But the direction is right.

The Numbers

Here’s the valuation math.

Fiscal 2026 EPS guidance is $12.10–$12.30, down from $13.26 last year.

The stock trades around $165. That’s a forward P/E of roughly 13.5x.

That guidance number that excludes future share repurchases and reflects a $220 million tariff headwind.

For context, the company repurchased $1.2 billion in shares in fiscal 2025 alone, at an average price of $188. With $1.2 billion still authorized and management stating it expects to maintain that pace, actual EPS will likely come in above guidance as share count continues declining.

EV/EBITDA sits around 9x.

Free cash flow over the trailing twelve months is approximately $1.4 billion.

The stock is trading at roughly 12x free cash flow, which is a multiple more appropriate for a slow-growth industrial than a brand with 20% China growth and a product refresh cycle underway.

The analyst consensus of $191–$205 implies 15–24% upside from current levels.

That feels conservative if the North America thesis starts to recover even modestly.

What Could Go Wrong

The leadership vacuum is the most underrated risk on this thesis.

Lululemon is being run by interim co-CEOs Meghan Frank and André Maestrini. Every day without a permanent CEO is a day the strategic agenda is in a holding pattern. Chip Wilson’s proxy campaign, in which he has nominated three independent board director candidates, adds boardroom distraction and governance noise to an already difficult execution moment.

The North America decline may be more structural than one product cycle. Two years of flat comparable sales in the company’s core market is not a blip. It may reflect real share loss to competitors like Alo Yoga, Vuori, and On Running. These are all companies which are eroding the premium athleisure consumer from multiple angles.

And tariffs are not going away. Lululemon sources heavily from Vietnam and China and their net tariff impact is guided at $220 million in 2026. The company has explicitly said it will not raise prices to offset it, which is a direct margin headwind with no quick offset available.

The risk that doesn’t get enough attention: if the CEO search extends deep into 2027, product innovation stalls again, and North America comparable sales fail to stabilize, this stock could look cheap for a very long time.

My Take

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” — Warren Buffett

I think LULU is a speculative buy at current levels, sized appropriately for the uncertainty.

The brand is not broken. The international growth story is real. The valuation has compressed to levels that price in a sustained disaster rather than a difficult transition.

The product refresh is underway.

The balance sheet gives management time to execute without financial pressure.

My entry range is $155–$175.

The next real data point is the Q1 fiscal 2026 earnings on May 28, 2026. That’s where we’ll first see whether the spring product refresh is resonating and whether the push back to full-price selling is gaining traction.

I don’t currently hold a position in LULU but am actively evaluating one within the entry range above.

The Earnout Investor provides analysis and research but DOES NOT provide individual financial advice. Jamie Dejter may have a position in some of the stocks mentioned. All content is for informational purposes only. The Earnout Investor is not a registered investment, legal, or tax advisor, or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.