Lululemon Athletica (Nasdaq: LULU): A Bear Case Theory

Lululemon Athletica (NASDAQ: LULU) is a leading brand in athletic apparel and footwear that recorded 19% year-over-year revenue growth to $10 billion in 2023, driven by women’s indoor training and the yoga segment. Over 70% of the company’s revenue comes from women’s wear, primarily from US and China markets. The company entered the footwear space in 2022 with a women’s running shoes series and launched running shoes for men in 2024. However, the shoes segment contributes less than 5% to the company’s revenue. Multiple shareholders like Vanguard and Blackrock own LULU in a slow-money dominant ownership structure, which could be a reason for its share price lagging its earnings. Here, we summarized an April bearish thesis published by TrojansFightOn on Value Investors Club.

A store employee in an athletic apparel store restocking merchandise.

The bear case identified LULU as a high-certainty short candidate for the short run, citing forecasts of a US sales slump and data indicating negative US growth in Q1. However, LULU’s China business is growing rapidly, with sources indicating between 30% and 40% revenue growth in the mainland, which aligns with consensus estimates. Simultaneously, low penetration in Latin America, Europe, and Asia ex-China, combined with its commitment to expanding its golf, tennis, and athleisure product lines, may offer extra growth opportunities.

LULU’s product-line expansion strategy is a typical approach companies embrace when primary product-line sales slow down. The thesis cites indoor fitness segment leader Under Armour’s pivot to yoga, skiing, and golf when revenue declined in 2017. The move didn’t work out as expected. While it remains unclear if the brand has already peaked, management remains committed to spurring growth with support from new product lines for the foreseeable future.

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 second quarter, down from 51 in the preceding quarter. While we acknowledge the potential of LULU as an investment, our conviction lies in the belief that 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 as promising as LULU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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