We came across a bearish thesis on Lululemon Athletica Inc. (LULU) on Substack by Kroker Equity Research. In this article, we will summarize the bears’ thesis on LULU. Lululemon Athletica Inc. (LULU)’s share was trading at $399.60 as of Dec 6th. LULU’s trailing and forward P/E were 28.89 and 26.32 respectively according to Yahoo Finance.
A customer in a specialty concept store wearing a full outfit of apparels and sports gear.
Lululemon Athletica delivered strong Q3 2024 results, with total revenue reaching $2.4 billion, a 9% year-over-year increase (8% in constant currency). While performance in the Americas was muted, with a 2% decline in comparable sales due to challenges such as a subdued product color palette and unseasonably warm weather, international markets were a bright spot. Revenue in China Mainland soared by 39% (36% in constant currency), supported by localized marketing and alignment with health-focused initiatives like “Healthy China 2030.” The Rest of the World segment also performed well, with a 27% revenue increase (23% in constant currency) and 20% comparable sales growth. Store expansion contributed to international success, with six new locations in China and a global store count of 749 at the quarter’s end, reflecting a net increase of 63 stores year-over-year.
Profitability metrics were robust, with gross profit rising to $1.4 billion (58.5% of revenue) and operating income improving to $490.7 million (20.5% of revenue). Net income reached $351.9 million, translating to $2.87 per share, up from $1.96 in the prior year. Despite inventory growing by 8% to $1.8 billion, operational efficiency was evident in capital expenditures of $178.5 million focused on store openings, distribution centers, and technology enhancements. The company also repurchased 1.6 million shares for $408.5 million, with an additional $1 billion authorized for future buybacks.
Category growth was consistent, with men’s, women’s, and accessories revenue increasing by 9%, 8%, and 8%, respectively, supported by seasonal collections and partnerships with Disney and the NHL. Digital revenue grew 4% to $945 million, accounting for 39% of total sales. The updated full-year guidance projects $10.452–$10.487 billion in revenue and $14.08–$14.16 in EPS, reflecting approximately 9% and 14% year-over-year growth, respectively.
However, the stock’s valuation remains a concern. After a significant run-up, Lululemon trades at 26.93x P/E and 19.56x EV/EBIT, well above levels from five months ago, with no corresponding fundamental change. Subdued comparable sales growth and incremental guidance adjustments suggest the valuation increase is not fully justified. While the company’s “Power of Three ×2” strategy and long-term targets remain compelling, the current price level limits the stock’s attractiveness, highlighting a disconnect between strong operational performance and overstretched valuation metrics.
Lululemon Athletica Inc. (LULU) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 45 hedge fund portfolios held LULU at the end of the third quarter which was 45 in the previous quarter. While we acknowledge the risk and potential of LULU as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LULU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.