Is the Market Too Pessimistic About Lululemon?

On the June 29, 2026, episode of The Morning Filter podcast, hosts Susan Dziubinski and Morningstar Chief US Market Strategist Dave Sekera answer an investor’s question about Lululemon LULU. Here’s an excerpt from the episode.

LULU’s Earnings Disappointment

Susan Dziubinski: It is time for our question of the week. As a reminder, if you have a question for Dave, send it to us at our email address, which is themorningfilter@morningstar.com. This week’s question comes from an unnamed “Lulu” stockholder. Basically, the viewer would like an update on Lululemon LULU. Dave and I intentionally held this question until after Lulu reported earnings. Maybe start with that, Dave. How did earnings look?

David Sekera: I would say the results were mixed at best. If you look at revenue, it came in up 4%, and most of that really came from China. China is 19% of their sales, and that was up 30%, so doing very well there. In fact, they’re doing very well in their other international markets as well. That’s a 13% increase in revenue, and that’s about 15% of their total revenue overall. The problem is that they had a 3% decline in the Americas. That is, of course, their largest geographic area; that’s 66% of revenue overall. I think the market is really focused on that decline and waiting to see them be able to halt that decline and start moving back up again. Unfortunately, margins also got hit pretty hard. The operating margin contracted by 730 basis points. Again, margins are really getting hit.

Unfortunately, the company also noted that results were continuing to get weaker over the course of this past quarter and are weak coming into this quarter as well. That led them to lower their guidance for 2026. As far as sales growth, they’re now looking for that to be flat to down 1%. Their prior guidance was looking for a 2% to 4% increase, and they brought their earnings per share down to a range of $10.95 to $11.15 per share. Before the cut, their earnings guidance was $12.10 to $12.30 per share. A pretty big cut in that earnings guidance. As far as the valuation goes, I mean, that trades at about 10.5 times the midpoint of that newly lowered guidance. Certainly looks like the market was very unhappy with the results and unhappy with what’s going on with the company overall.

Can Lululemon’s New CEO Win Over Investors?

Dziubinski: Let’s look at the bigger picture, Dave. What’s really going on with Lululemon now? I think the company, since we last talked about it, named a new CEO, right?

Sekera: The market is really not enamored with the new CEO that they picked. Now, she is coming from Nike NKE, but Nike hasn’t been doing all that great, either. At Nike, she most recently served as the president of the consumer product and brand. I think the market right now is really looking at her as being much more of a product person. What I mean by that is if you think about Nike and how they market themselves, they heavily rely on athlete endorsements. It’s a brand where you’re really trying to convey aspirational competitive success. So, really, a very competitive product, which to some degree is the opposite of how you market Lululemon. The brand image there, when you think about it, is much more about lifestyle, much more about wellness. I think in this case, she’s going to have her work cut out for her, really trying to make sure that she understands how to be able to market Lululemon and what those products mean to their customers as compared with how you traditionally try to market athletic shoes and running shoes. I think she’s got her work cut out for her, and she’s definitely going to have to do a lot to be able to convey to the marketplace that she really understands Lululemon.

Is Now the Time to Buy Lululemon Stock?

Dziubinski: Lululemon is trading way below Morningstar’s $280 fair value estimate. Why is Morningstar’s take so different from the market, and do you think there’s an opportunity to put new money to work with Lululemon?

Sekera: Short answer is yes; it still looks like there’s a pretty good opportunity to put new money into this name. However, just like we’ve always talked about before, I always like to put in a partial position to start, and then that way you have the dry powder, the dollar-cost average going forward. When I look at our projections here, I’m just going to kind of run through what’s in our model today and what our fair value is based on. We’re looking for stagnant revenue this year, maybe up or down like a percent or two, but then we’re looking for a rebound by 2027, getting back to a 4.4% growth rate and then looking essentially for a 6.0% annualized growth rate thereafter. So, much more kind of that normal historical kind of growth rate that they’ve been able to post in the past.

Now, as far as margins go, we’re looking for contraction this year. We’re looking for the operating margin to contract from the 16.1% that’s down from 19.9% last year. When I look at the longer term for this company, they’ve averaged about 21% over the past decade. Even looking forward, we’re only bringing that margin up to 16.7% in 2027, up to 19.7% in 2028, and then getting back to 20.8%, so that normalized margin, by our out years. Now, as far as earnings go, after the decline this year, we’re looking for that to rebound by 13% next year, 32% in 2028, and 18% in 2029, as the operating margin expansion leverage is able to reduce those earnings over the next couple of years. If our analyst is correct with his assumptions and his projections, I mean the company’s only trading at just over 9 times his 2027 earnings estimate.

What that tells me is the market is still pricing in continued earnings erosion from where we are here today. This is one of those stories where, if the company can just halt the bleeding and just even keep earnings where they are today, it looks pretty attractive just on kind of that stagnant basis. If the company can turn things around and start growing again, this one has a lot of upside to our analyst’s fair value estimate.

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