For over a decade, Lululemon (Nasdaq: LULU) has had a stranglehold on the athleisure fashion market. Luluemon stock hit a high of roughly $511/share at the beginning of 2024. But, since then, it has tumbled 40% – bad enough to make one of the worst-performing stocks in the S&P 500. So, this is the perfect time to scoop up shares of Lulu at a discount? Or is this the beginning of the end for Lulu’s dominance?

Let’s take a look.

Lulu’s Most Recent Quarter

I dove into Lululemon’s most recent quarterly earnings report (June 6th) to get an idea of how the company has been performing recently. Here’s what I learned:

  1. Net Revenue: $2.2 billion, up 10% annually. 
  2. Gross Profit: $1.3 billion, up 11% annually
  3. Balance Sheet: The company ended the Q1 2024 with $1.9 billion in cash
  4. Guidance: For Q2 2024, Lululemon expects net revenue of $2.4 – $2.42 billion, which would represent growth of 9% to 10%
  5. Stock Repurchases: The Board of Directors authorized a $1 billion stock buyback program.

At first glance, these results are not bad at all. But, they’re also not overwhelmingly good – especially for a company that should still be growing fairly quickly. 

CEO Calvin McDonald stated that there was strong momentum in international markets last quarter. He also confirmed that the company left money on the table by not having enough products in stock to meet high demand. McDonald also stated that he’s confident in the company’s abilities moving forward. 

Looking ahead, the company is focusing on product innovation, guest experience, and market expansion. Lululemon also expects growth in these areas:

  • Men’s Apparel 
  • E-commerce
  • International net revenue: International revenue currently makes up just 21% of the company’s sales. Lulu hopes to quadruple 2024 int’l revenue relative to 2021.

However, as far as bad news, Lululemon announced the departure of its Chief Product Officer, Sun Choe. According to a few reports I read, Choe was a driving force behind product innovation at Lululemon. The company will miss Choe and has had to reshuffle its internal structure following this departure. 

So, what does all this mean for investors?

Time to Buy Lululemon Stock?

With Lululemon stock down 40% YTD, it might seem like time to deploy Warren Buffet’s famous advice of “buy a great company at a good price.” But, I don’t think this applies to Luluemon stock right now. I believe that there is downside potential ahead for Lululemon thanks to three risk factors.

Risk #1 – Increased Competition

Years ago, Lululemon was virtually alone in the athleisure space. This wasn’t all too surprising, since the company essentially created athleisure. Sure, you could argue that Nike (NYSE: NKE) or Adidas (OTCMKTS: ADDYY) were semi-competitors. But, Lululemon was always in a vastly different space than these two all-in-one athletic apparel giants. Lulu goes after a much more niche, high-end market.

Lulu’s days of monopolistic power are quickly coming to an end. Today, Lululemon faces steep competition from companies like Alo, Vuori, Gym Shark, Fabletics, and many smaller brands. Granted, none of these companies have grown to the size of Lululemon (yet). But, they’re all still formidable opponents:

  1. Vuori: This San Diego-based brand is worth an estimated $4 billion and is considering an IPO. It has also differentiated itself from Lululemon by mainly targeting men (an area that Lulu is looking to for growth). For what it’s worth, I (a 28-year-old male) own clothes from both brands and prefer Vuori for a handful of reasons.
  2. Alo: Alo is worth an estimated $10 billion. It gained popularity thanks to its savvy influencer-first approach to marketing.
  3. Fabletics: Fabletics considered an IPO in 2021 that would have valued it at $5 billion. I couldn’t find any numbers more recent than this.
  4. Gymshark: Gymshark is valued at just under $2 billion. It’s also based in the United Kingdom which could hinder Lulu’s international expansion plans.

With a market cap of just under $40 billion, these companies still pale in comparison to Lululemon. But, that’s not the point. The point is that roughly 10 years ago Lululemon was the only name in high-end athletic apparel. Today, there are plenty of places where customers can buy a $128 pair of leggings or pants. Two of these competitors (Vuori and Gymshark) also operate in verticals that Lulu is looking to for growth.

Sales data for the four competitors listed above is largely private. So, I used another metric to compare them to Lululemon: Instagram followers (Nasdaq: META). Here’s how they stack up:

  1. Gymshark: 7 million followers (Gymshark Women has 3.5 million)
  2. Lululemon: 5 million 
  3. Alo: 2 million 
  4. Fabletics: 2 million
  5. Vuori: 1 million

If you’re thinking of buying Lululemon stock, you have to consider how this competition could eat into Lululemon’s growth over the next 5-10 years. Lululemon has such a head start so it’s unlikely that it’ll get fully dethroned from its top position. But, the company also won’t enjoy the monopolistic position that it had over the past year. Plenty of former-Lulu male customers may start opting for Vuori while overseas athletes may choose Gymshark.

Risk #2 – Dupe Culture 

The rise of dupe culture is another issue that could hurt Lululemon stock in the coming months. A “dupe” or duplicate is just a knockoff of an existing product. 

The cost of living in the US has risen dramatically in the past few years. In response, US consumers are turning to dupes more than ever. In Lululemon’s case, more people are buying off-brand yoga pants for $40 instead of shelling out $128 to buy Lulus. If you search for #Lululemondupe on TikTok, you’ll see tons of videos on the subject that routinely get millions of views. I also took a look at Google Trends data, which showed that internet searches for “lululemon dupe” have been consistently trending higher since 2020. 

Lululemon isn’t the only company that has to deal with dupes. In fact, most high-end brands can expect their products to get copied. For example, Nike (Nasdaq: NKE) has always had an issue with fake Air Jordans but it has never seemed to hurt the company’s revenue.

Right now, it’s hard to tell if dupe culture is hurting Lululemon’s sales. But, it is a big enough issue that Lululemon felt the need to addressed it. Either way, dupes are another risk factor for Lulu moving forward.

Risk #3 – Gen Z’s Baggy Pants Trend

Lululemon has made a living off of its skin-hugging yoga pants. But, from what I’ve seen, Gen Zers show a preference for baggier sweatpants, hoodies, and t-shirts.

 A 5-year Google Trends chart for “baggy pants” supports this thesis. But, other than that, I don’t have much tangible data to point to for this trend. It’s just something I’ve observed on social media and in my own life. In my experience, tighter clothes seem to be on their way out while overly baggy clothing is in. I scanned Lululemon’s website and didn’t find anything that looked like they’ve caught on to this trend. Lululemon also launched in 1995 and had a stranglehold on consumers in the 2000s and 2010s. But, by this point, Lulu might not resonate as much with younger shoppers. If this doesn’t change, I wouldn’t be surprised if Lululemon started to get stereotyped as an “older people brand” in the coming years and lost ground to “cooler” upstarts (like the aforementioned Vuori, Alo, Gymshark, etc). That said, fashion trends vary by region and can change quickly. 

This is admittedly the weakest risk on this list. But, it’s still a potential risk nonetheless. 

Now, back to the question at hand.

Should You Buy Lululemon Stock?

I wouldn’t. It seems like Lulu is facing quite a few headwinds over the coming months. The company just lost a key executive in Sun Choe. It’s also facing steep competition in the exact verticals where it’s hoping for growth (men’s wear and international markets). The stock has also been getting punished so far this year, which is a sign that investor sentiment has changed for Lululemon – perhaps the toughest obstacle to overcome. 

I don’t necessarily think that Lululemon stock will tank over the coming months. But, it’s likely that Lulu will underperform the market or at best break even. Even if Lulu hits its goal of 10% revenue growth in 2024, I don’t see investors getting particularly excited. 

That said, fashion trends can change on a dime. All it takes is the blowout success of one product to change the narrative – a feat that Lulu has accomplished many times.

I hope that you’ve found this article valuable when it comes to discovering whether or not to buy Lululemon stock. If you’re interested in learning more then please subscribe below to get alerted of new articles.

Disclaimer: This article is for general informational and educational purposes only. It should not be construed as financial advice as the author, Ted Stavetski, is not a financial advisor.