For over a decade, Lululemon (Nasdaq: LULU) has had a stranglehold on the athleisure trend market. Luluemon inventory hit a excessive of roughly $511/share at the start of 2024. However, since then, it has tumbled 40% – dangerous sufficient to make one of many worst-performing shares within the S&P 500. So, that is the proper time to scoop up shares of Lulu at a reduction? Or is that this the start of the tip for Lulu’s dominance?

Let’s have a look.

Lulu’s Most Latest Quarter

I dove into Lululemon’s most up-to-date quarterly earnings report (June sixth) to get an thought of how the corporate has been performing lately. Right here’s what I discovered:

Internet Income: $2.2 billion, up 10% yearly. 
Gross Revenue: $1.3 billion, up 11% yearly
Stability Sheet: The corporate ended the Q1 2024 with $1.9 billion in money
Steerage: For Q2 2024, Lululemon expects internet income of $2.4 – $2.42 billion, which might signify development of 9% to 10%
Inventory Repurchases: The Board of Administrators approved a $1 billion inventory buyback program.

At first look, these outcomes usually are not dangerous in any respect. However, they’re additionally not overwhelmingly good – particularly for an organization that ought to nonetheless be rising pretty rapidly. 

CEO Calvin McDonald acknowledged that there was robust momentum in worldwide markets final quarter. He additionally confirmed that the corporate left cash on the desk by not having sufficient merchandise in inventory to fulfill excessive demand. McDonald additionally acknowledged that he’s assured within the firm’s skills transferring ahead. 

Wanting forward, the corporate is specializing in product innovation, visitor expertise, and market growth. Lululemon additionally expects development in these areas:

Males’s Attire 
E-commerce
Worldwide internet income: Worldwide income at present makes up simply 21% of the corporate’s gross sales. Lulu hopes to quadruple 2024 int’l income relative to 2021.

Nonetheless, so far as dangerous information, Lululemon introduced the departure of its Chief Product Officer, Solar Choe. In accordance to a couple stories I learn, Choe was a driving pressure behind product innovation at Lululemon. The corporate will miss Choe and has needed to reshuffle its inside construction following this departure. 

So, what does all this imply for traders?

Time to Purchase Lululemon Inventory?

With Lululemon inventory down 40% YTD, it’d look like time to deploy Warren Buffet’s well-known recommendation of “purchase an incredible firm at a very good value.” However, I don’t suppose this is applicable to Luluemon inventory proper now. I imagine that there’s draw back potential forward for Lululemon thanks to a few danger components.

Danger #1 – Elevated Competitors

Years in the past, Lululemon was nearly alone within the athleisure area. This wasn’t all too shocking, for the reason that firm basically created athleisure. Certain, you can argue that Nike (NYSE: NKE) or Adidas (OTCMKTS: ADDYY) have been semi-competitors. However, Lululemon was at all times in a vastly completely different area than these two all-in-one athletic attire giants. Lulu goes after a way more area of interest, high-end market.

Lulu’s days of monopolistic energy are rapidly coming to an finish. At this time, Lululemon faces steep competitors from firms like Alo, Vuori, Fitness center Shark, Fabletics, and plenty of smaller manufacturers. Granted, none of those firms have grown to the scale of Lululemon (but). However, they’re all nonetheless formidable opponents:

Vuori: This San Diego-based model is price an estimated $4 billion and is contemplating an IPO. It has additionally differentiated itself from Lululemon by primarily focusing on males (an space that Lulu is trying to for development). For what it’s price, I (a 28-year-old male) personal garments from each manufacturers and like Vuori for a handful of causes.
Alo: Alo is price an estimated $10 billion. It gained reputation because of its savvy influencer-first method to advertising.
Fabletics: Fabletics thought of an IPO in 2021 that might have valued it at $5 billion. I couldn’t discover any numbers more moderen than this.
Gymshark: Gymshark is valued at just below $2 billion. It’s additionally based mostly in the UK which might hinder Lulu’s worldwide growth plans.

With a market cap of just below $40 billion, these firms nonetheless pale compared to Lululemon. However, that’s not the purpose. The purpose is that roughly 10 years in the past Lululemon was the one title in high-end athletic attire. At this time, there are many locations the place clients can purchase a $128 pair of leggings or pants. Two of those opponents (Vuori and Gymshark) additionally function in verticals that Lulu is trying to for development.

Gross sales information for the 4 opponents listed above is basically personal. So, I used one other metric to match them to Lululemon: Instagram followers (Nasdaq: META). Right here’s how they stack up:

Gymshark: 7 million followers (Gymshark Girls has 3.5 million)
Lululemon: 5 million 
Alo: 2 million 
Fabletics: 2 million
Vuori: 1 million

Should you’re considering of shopping for Lululemon inventory, it’s a must to think about how this competitors might eat into Lululemon’s development over the following 5-10 years. Lululemon has such a head begin so it’s unlikely that it’ll get totally dethroned from its high place. However, the corporate additionally gained’t benefit from the monopolistic place that it had over the previous yr. Loads of former-Lulu male clients could begin choosing Vuori whereas abroad athletes could select Gymshark.

Danger #2 – Dupe Tradition 

The rise of dupe tradition is one other challenge that would damage Lululemon inventory within the coming months. A “dupe” or duplicate is only a knockoff of an current product. 

The price of residing within the US has risen dramatically prior to now few years. In response, US shoppers are turning to dupes greater than ever. In Lululemon’s case, extra individuals are shopping for off-brand yoga pants for $40 as an alternative of shelling out $128 to purchase Lulus. Should you seek for #Lululemondupe on TikTok, you’ll see tons of movies on the topic that routinely get thousands and thousands of views. I additionally took a take a look at Google Developments information, which confirmed that web searches for “lululemon dupe” have been constantly trending greater since 2020. 

Lululemon isn’t the one firm that has to cope with dupes. Actually, most high-end manufacturers can count on their merchandise to get copied. For instance, Nike (Nasdaq: NKE) has at all times had a problem with pretend Air Jordans but it surely has by no means appeared to harm the corporate’s income.

Proper now, it’s exhausting to inform if dupe tradition is hurting Lululemon’s gross sales. However, it’s a large enough challenge that Lululemon felt the necessity to addressed it. Both approach, dupes are one other danger issue for Lulu transferring ahead.

Danger #3 – Gen Z’s Dishevelled Pants Pattern

Lululemon has made a residing off of its skin-hugging yoga pants. However, from what I’ve seen, Gen Zers present a desire for baggier sweatpants, hoodies, and t-shirts.

 A 5-year Google Developments chart for “dishevelled pants” helps this thesis. However, aside from that, I don’t have a lot tangible information to level to for this development. It’s simply one thing I’ve noticed on social media and in my very own life. In my expertise, tighter garments appear to be on their approach out whereas overly dishevelled clothes is in. I scanned Lululemon’s web site and didn’t discover something that appeared like they’ve caught on to this development. Lululemon additionally launched in 1995 and had a stranglehold on shoppers within the 2000s and 2010s. However, by this level, Lulu may not resonate as a lot with youthful consumers. If this doesn’t change, I wouldn’t be shocked if Lululemon began to get stereotyped as an “older individuals model” within the coming years and misplaced floor to “cooler” upstarts (just like the aforementioned Vuori, Alo, Gymshark, and so on). That mentioned, trend tendencies fluctuate by area and might change rapidly. 

That is admittedly the weakest danger on this record. However, it’s nonetheless a possible danger nonetheless. 

Now, again to the query at hand.

Ought to You Purchase Lululemon Inventory?

I wouldn’t. It looks as if Lulu is going through fairly a number of headwinds over the approaching months. The corporate simply misplaced a key government in Solar Choe. It’s additionally going through steep competitors within the actual verticals the place it’s hoping for development (males’s put on and worldwide markets). The inventory has additionally been getting punished to this point this yr, which is an indication that investor sentiment has modified for Lululemon – maybe the hardest impediment to beat. 

I don’t essentially suppose that Lululemon inventory will tank over the approaching months. However, it’s possible that Lulu will underperform the market or at finest break even. Even when Lulu hits its objective of 10% income development in 2024, I don’t see traders getting notably excited. 

That mentioned, trend tendencies can change on a dime. All it takes is the blowout success of 1 product to alter the narrative – a feat that Lulu has achieved many instances.

I hope that you simply’ve discovered this text worthwhile on the subject of discovering whether or not or to not purchase Lululemon inventory. Should you’re concerned with studying extra then please subscribe under to get alerted of recent articles.

Disclaimer: This text is for normal informational and academic functions solely. It shouldn’t be construed as monetary recommendation because the creator, Ted Stavetski, will not be a monetary advisor.