Lululemon Is Down 57% in 2025. Is This a Once-in-a-Lifetime Buying Opportunity Before the Stock Goes Parabolic?

Key Points

• Lululemon’s stock was cut in half this year.

• Its top-line growth is decelerating and its gross margins are peaking.

• The stock looks cheap, but it could deserve that discount valuation.

• 10 stocks we like better than Lululemon Athletica Inc. ›

Lululemon (NASDAQ: LULU) was one of the market's hottest apparel stocks. The yoga and athletic apparel maker's shares closed at a record high of $511.29 on Dec. 29, 2023, marking a 5,581% gain from its split-adjusted IPO price of $9 in July 2007. At the time, the bulls were dazzled by its robust growth and rosy long-term outlook.

But today, Lululemon's stock trades at about $166. It declined nearly 57% in 2025, even as the S&P 500 advanced 13%. Let's see why it underperformed the market, and if that steep pullback represents a once-in-a-lifetime buying opportunity for patient investors.

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Image source: Getty Images.

Why did growth investors love Lululemon?

Lululemon, which was founded in 1998 in Vancouver, established an early mover's advantage in the premium yoga and athleisure apparel market. The company strengthened its brand and locked in customers with free yoga classes, and expanded its online marketplace and opened more brick-and-mortar stores to boost direct-to-consumer sales.

But Lululemon wasn't always a great growth story. Like many of its industry peers, it struggled with a rough slowdown during the Great Recession from 2008 to 2009. In 2013, a recall of its see-through yoga pants and a few controversial comments by founder Chip Wilson tarnished its brand. Its CEO Christine Day resigned that same year, and her successor, Laurent Potdevin, struggled to stabilize the company over the following years before stepping down amid misconduct allegations in 2018.

Lululemon's future looked murky after all of those setbacks, and its competitors like Nike and Under Armour were gradually gaining ground in the athleisure market. But in 2019, Potdevin's successor, Calvin McDonald, launched a bold "Power of Three" plan to double its digital revenue, double its men's revenue, and quadruple its international revenue from fiscal 2018 (which ended in February 2019) over the following five years.

Lululemon achieved all of those goals ahead of schedule, even as it temporarily closed some of its stores during the pandemic. It accomplished that by shifting more product sales online, expanding overseas, and launching more men's products.

As more consumers worked from home, they bought more comfort-oriented athleisure apparel. To keep up with that secular shift and avoid more recalls, Lululemon streamlined its supply chain. It also kept its prices high and limited markdowns to preserve its premium appeal.

In 2022, McDonald launched a new "Power of Three x2" plan with the same goals for doubling its men's revenue, doubling digital revenue, quadrupling international revenue, and nearly doubling its total revenue (from $6.3 billion to $12.5 billion) from fiscal 2021 to fiscal 2026. That's why the stock soared to its all-time highs in late 2023, even as inflation, high interest rates, and other macro headwinds weighed down the broader market.

Why did Lululemon lose its luster?

But over the past three and a half years, Lululemon's revenue and comparable sales growth slowed as its gross margins seemingly peaked.

Data source: Lululemon. YOY = Year-over-year.

In North America, its largest market, sales of women's apparel slowed down as it faced tough macroeconomic and competitive headwinds. Overseas growth couldn't offset that pressure, and the company's chief product officer Sun Choe -- who was hired in 2018 and largely credited with engineering its turnaround -- abruptly resigned last May.

As Lululemon's growth decelerated, it leaned more heavily on markdowns to drive sales as its gross margins absorbed some of its higher input costs from inflation and overseas tariffs. For the full year, the company expects revenue to rise 4% to 6% (excluding comparisons to the 53rd week of 2024) to $10.85 to $11.00 billion, but for its earnings per share (EPS) to decline 11% to 13%. However, Lululemon still expects to achieve its Power of Three x2 goals by fiscal 2026 -- which implies its revenue will rise 14% (from the midpoint of fiscal 2025 estimates) to $12.5 billion. Analysts expect revenue to only grow 5% to $11.5 billion as its EPS increases 4%.

Could Lululemon's stock go parabolic again?

At $166, Lululemon's stock looks cheap at 12 times next year's earnings. But it trades at that discount because there's a huge gap between its own near-term outlook and Wall Street's expectations, and it's unclear if the company can fend off competitors as it navigates the challenging macro headwinds.

So, while Lululemon might be a decent value play at these levels, I don't think it will skyrocket back toward record highs anytime soon. Investors should wait for more green shoots to appear before buying its beaten-down stock as a turnaround play.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica Inc. and Nike. The Motley Fool recommends Under Armour. The Motley Fool has a disclosure policy.