Valued at a market capitalization of US$19.2 billion, Lululemon (NASDAQ: LULU) is one of the most recognizable retail brands globally. It designs, distributes, and sells athletic apparel, footwear, and accessories for women and men under the Lululemon brand.
LULU stock went public in September 2007 and has since returned more than 1,000% to shareholders. However, it has grossly underperformed the broader market in recent years, trading almost 70% below all-time highs.
Let’s see if you should buy the dip in Lululemon stock right now.
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Is Lululemon stock a good investment in 2025?
Lululemon reported mixed second-quarter results, with earnings exceeding expectations but revenue falling short. This prompted the athletic apparel retailer to slash full-year guidance amid mounting pressures in its core U.S. market and escalating tariff costs. The company now expects 2025 revenue growth of just 4% to 6%, excluding the prior year’s 53rd week, down from previous estimates.
In the fiscal second quarter (Q2), U.S. revenue remained flat year over year, with comparable sales declining 3% as consumers showed signs of fatigue. Notably, casual franchises like Scuba, Softstreme, and Dance Studio account for 40% of the product mix. Management acknowledged that product life cycles ran too long in lounge and social categories, which made offerings “stale” and “too predictable.”
Tariff pressures impacted margins, with the removal of the de minimis exemption and higher reciprocal rates creating an estimated US$240 million mitigated impact on gross margin for 2025. Lululemon expects a 300-basis-point decline in full-year gross margin, with 220 basis points attributed to tariff-related costs. The athleisure giant had benefited meaningfully from shipping two-thirds of U.S. e-commerce orders from Canada under the de minimis exemption.
International markets continued to deliver robust growth, which offset weak sales in the U.S. China Mainland revenue increased 25%, with comparable sales up 16%. However, management noted early signs of macro-driven headwinds in tier-one cities. The rest of the world revenue grew 19%, supported by ongoing market expansion, including new stores in Italy, Turkey, and Belgium.
Digital channel strength emerged as another tailwind, with online revenue increasing 9% to reach US$1 billion, representing 39% of total revenue. Lululemon’s membership program now includes approximately 30 million members, demonstrating continued brand loyalty despite product challenges.
CEO Calvin McDonald outlined a comprehensive product reset led by Global Creative Director Jonathan Cheung, focusing on increasing the proportion of new styles from 23% to 35% of the assortment by spring 2026.
Is LULU stock undervalued?
Analysts forecast Lululemon’s sales to increase from US$10.6 billion in fiscal 2025 (ended in January) to US$14 billion in fiscal 2030, indicating an annual growth rate of less than 6%. Over the last five years, its sales have grown by 21.6% annually.
Comparatively, adjusted earnings per share are forecast to grow from US$14.64 in fiscal 2025 to US$20 in 2030, indicating a 6.4% annual growth rate. Over the past five years, Lululemon has grown adjusted earnings at an annual rate of 24%.
Today, LULU stock trades at 12.6 times forward earnings, which is lower than its 10-year average of 34 times. If LULU stock trades at 12 times earnings, it should be priced at US$240 in early 2029, indicating an upside potential of almost 50% from current levels. LULU stock also trades at a 23% discount to consensus price targets in September 2025.
