lululemon athletica inc. LULU shares have declined 14.1% over the past month as investors assess weaker demand trends, margin pressure and a lowered fiscal 2026 outlook. The company’s recent performance highlights a gap between its long-term growth opportunities and near-term execution challenges.
The stock currently carries a Zacks Rank #5 (Strong Sell). LULU has a Value Score of B, Growth Score of B, Momentum Score of F and VGM Score of C. While valuation has become more attractive after the share-price decline, weaker earnings trends and limited visibility on a sales recovery remain key concerns.
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lululemon athletica inc. Price, Consensus and EPS Surprise
lululemon athletica inc. price-consensus-eps-surprise-chart | lululemon athletica inc. Quote
LULU Faces Pressure From Softer Demand
lululemon’s second-quarter fiscal 2026 results reflected weakening demand across major markets. Revenue declined 4% year over year to $2.4 billion, or 5% on a constant-dollar basis, while comparable sales fell 9%, or 10% on a constant-dollar basis. The Americas remained the largest pressure point, with revenue down 8% and comparable sales down 12%.
Management attributed recent weakness to lower traffic, softer conversion and inconsistent product launch responses. On the earnings call, management said negative commentary in media and social channels affected traffic, while some new product launches performed below expectations.
The company expects near-term pressure to continue. For fiscal 2026, lululemon now projects revenue of $10.35-$10.50 billion, representing a decline of 5-7%, with earnings expected at $9.48-$9.73 per share.
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lululemon’s Product Reset Targets New Demand
lululemon is adjusting its product strategy as consumer preferences shift. Management highlighted improving demand for newer away-from-body women’s bottoms, including Groove Wide-Leg, Align Foldover Jogger, Breezily and the updated Dance Studio Pant. The company expects these styles to gain momentum through the back half of fiscal 2026 and into 2027.
At the same time, core categories remain under pressure. Leggings sales declined approximately 20% in the second quarter as some consumers moved toward looser silhouettes, and newer styles have not yet fully offset the decline.
The company is responding by reducing SKUs, updating core franchises and increasing product chase activity. Management said lululemon is chasing approximately 20% more volume this year than last year to improve its ability to respond to guest demand.
Competitive Landscape Adds Pressure
lululemon competes with large athletic apparel companies such as NIKE Inc. NKE and adidas AG ADDYY, which continue to invest in product innovation, global brand-building and direct-to-consumer channels. NIKE continues to leverage its global brand presence, product innovation and extensive distribution network across running, training and lifestyle categories. adidas competes through its focus on athletic footwear, apparel and lifestyle products, supported by global brand recognition and collaborations across sports and culture.
The competitive environment adds pressure on lululemon to strengthen product relevance, maintain brand engagement and improve demand trends across key markets.
LULU’s Margins Face Ongoing Challenges
Profitability benefited from tariff refunds in the second quarter, but underlying margin pressures remain. Gross margin increased to 60.5% from 58.5% a year ago, helped by $134.5 million of IEEPA tariff refunds that added 560 basis points to gross margin.
Excluding the tariff benefit, the company faced pressure from higher tariffs, markdowns and fixed-cost deleverage. Management noted that markdowns increased 70 basis points in the quarter, while fixed-cost deleverage reduced gross margin by 230 basis points.
Selling, general and administrative expenses increased to 41.7% of revenue from 37.7% a year ago, reflecting fixed-cost deleverage, guest-experience investments, marketing spending and other expenses. Operating income declined 13% to $453.7 million, while operating margin fell to 18.8%.
lululemon’s International Growth Story Slows
International markets continue to provide a potential growth avenue, although momentum has moderated. In the second quarter, international revenue increased 4% year over year, or 2% on a constant-dollar basis. China Mainland revenue increased 4% on a reported basis but declined 2% on a constant-currency basis, while comparable sales fell 8% in constant dollars.
Management said China Mainland performance was affected by weaker brand sentiment, traffic pressure and e-commerce impacts. The company continues to view China Mainland as a long-term expansion opportunity and plans additional brand activations and store openings in the region.
Rest of World revenue increased 5% on a reported basis and 6% in constant currency during the quarter. lululemon ended the quarter with 825 company-operated stores globally, with store expansion increasingly weighted toward international markets.
LULU Ratings Reflect Mixed Signals
LULU’s valuation metrics have improved after the stock decline. The shares trade at 10.52X forward 12-month earnings, below the Zacks sub-industry multiple of 14.4X and the company’s five-year median of 26.5X. The stock also carries a Value Score of B, reflecting relatively favorable valuation measures.
However, the company’s Momentum Score of F reflects recent share-price weakness, while Zacks research points to weaker earnings trends, reduced guidance and limited visibility on a near-term sales recovery.
lululemon retains several potential recovery drivers, including product innovation, international expansion, store and digital investments and financial flexibility. The company ended the second quarter with $1.4 billion in cash and cash equivalents, $593.7 million of available revolver capacity and inventory of $1.7 billion, down 1% year over year in dollars and 7% in units.
The company’s ability to stabilize traffic, improve full-price selling and convert new product momentum into broader demand trends will remain key factors for investors monitoring LULU’s outlook.
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This article originally published on Zacks Investment Research (zacks.com).