For over a decade, Lululemon (Nasdaq: LULU) has had a stranglehold on the athleisure vogue market. Luluemon inventory hit a excessive of roughly $511/share initially 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 top for Lulu’s dominance?

Let’s have a look.

Lulu’s Most Current Quarter

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

Internet Income: $2.2 billion, up 10% yearly. 
Gross Revenue: $1.3 billion, up 11% yearly
Steadiness Sheet: The corporate ended the Q1 2024 with $1.9 billion in money
Steerage: For Q2 2024, Lululemon expects web income of $2.4 – $2.42 billion, which might characterize 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 a corporation that ought to nonetheless be rising pretty shortly. 

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 satisfy excessive demand. McDonald additionally acknowledged that he’s assured within the firm’s skills shifting ahead. 

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

Males’s Attire 
E-commerce
Worldwide web 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 reviews I learn, Choe was a driving power behind product innovation at Lululemon. The corporate will miss Choe and has needed to reshuffle its inner construction following this departure. 

So, what does all this imply for buyers?

Time to Purchase Lululemon Inventory?

With Lululemon inventory down 40% YTD, it would seem to be time to deploy Warren Buffet’s well-known recommendation of “purchase an excellent firm at a very good worth.” However, I don’t suppose this is applicable to Luluemon inventory proper now. I consider that there’s draw back potential forward for Lululemon thanks to 3 threat components.

Threat #1 – Elevated Competitors

Years in the past, Lululemon was just about alone within the athleisure house. This wasn’t all too shocking, because the firm basically created athleisure. Certain, you would argue that Nike (NYSE: NKE) or Adidas (OTCMKTS: ADDYY) had been semi-competitors. However, Lululemon was all the time in a vastly completely different house 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 shortly coming to an finish. Right now, Lululemon faces steep competitors from corporations like Alo, Vuori, Fitness center Shark, Fabletics, and plenty of smaller manufacturers. Granted, none of those corporations have grown to the scale of Lululemon (but). However, they’re all nonetheless formidable opponents:

Vuori: This San Diego-based model is value an estimated $4 billion and is contemplating an IPO. It has additionally differentiated itself from Lululemon by primarily concentrating on males (an space that Lulu is trying to for development). For what it’s value, I (a 28-year-old male) personal garments from each manufacturers and like Vuori for a handful of causes.
Alo: Alo is value an estimated $10 billion. It gained recognition due to its savvy influencer-first strategy to advertising.
Fabletics: Fabletics thought-about an IPO in 2021 that may 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 may hinder Lulu’s worldwide enlargement plans.

With a market cap of just below $40 billion, these corporations 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. Right now, there are many locations the place prospects can purchase a $128 pair of leggings or pants. Two of those rivals (Vuori and Gymshark) additionally function in verticals that Lulu is trying to for development.

Gross sales knowledge for the 4 rivals listed above is essentially personal. So, I used one other metric to check 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

When you’re pondering of shopping for Lululemon inventory, you need to contemplate how this competitors may 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 12 months. Loads of former-Lulu male prospects could begin choosing Vuori whereas abroad athletes could select Gymshark.

Threat #2 – Dupe Tradition 

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

The price of dwelling 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 a substitute of shelling out $128 to purchase Lulus. When you seek for #Lululemondupe on TikTok, you’ll see tons of movies on the topic that routinely get tens of millions of views. I additionally took a have a look at Google Traits knowledge, which confirmed that web searches for “lululemon dupe” have been constantly trending larger since 2020. 

Lululemon isn’t the one firm that has to take care of dupes. The truth is, most high-end manufacturers can count on their merchandise to get copied. For instance, Nike (Nasdaq: NKE) has all the time had a difficulty with faux Air Jordans but it surely has by no means appeared to harm the corporate’s income.

Proper now, it’s onerous to inform if dupe tradition is hurting Lululemon’s gross sales. However, it’s a large enough concern that Lululemon felt the necessity to addressed it. Both means, dupes are one other threat issue for Lulu shifting ahead.

Threat #3 – Gen Z’s Dishevelled Pants Pattern

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

 A 5-year Google Traits chart for “dishevelled pants” helps this thesis. However, aside from that, I don’t have a lot tangible knowledge 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 means out whereas overly dishevelled clothes is in. I scanned Lululemon’s web site and didn’t discover something that seemed 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 buyers. If this doesn’t change, I wouldn’t be stunned 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 stated, vogue traits differ by area and may change shortly. 

That is admittedly the weakest threat on this listing. However, it’s nonetheless a possible threat 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 just a few headwinds over the approaching months. The corporate simply misplaced a key govt 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 12 months, 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 doubtless that Lulu will underperform the market or at greatest break even. Even when Lulu hits its purpose of 10% income development in 2024, I don’t see buyers getting notably excited. 

That stated, vogue traits can change on a dime. All it takes is the blowout success of 1 product to vary the narrative – a feat that Lulu has achieved many instances.

I hope that you simply’ve discovered this text precious in the case of discovering whether or not or to not purchase Lululemon inventory. When you’re eager about studying extra then please subscribe under to get alerted of recent articles.

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