Lululemon Athletica Inc. has been re-rated on Wall Street.
Blame a slow-to-come turnaround in the U.S., worries over China or a much bigger than expected hit from the de minimis switch, but the company is just not on the industry-leading high it once was — it’s in good company, yes, but Lululemon’s stock is now running with the pack.
Shares of the firm hit a five-year low on Monday, but closed up 0.2 percent to $168.10, leaving it with a market capitalization of $19.9 billion. By sheer size, that left Lululemon between Coach-parent Tapestry Inc. (with a market cap of $21.8 billion) and Ralph Lauren Inc. ($18.7 billion).
Ten years ago, those three companies were each worth less than $10 billion to Wall Street. But then Lululemon hit a profitable, double-digit growth spurt under chief executive officer Calvin McDonald, pushing the company’s market cap up over $64 billion in late 2023.
The remarkable earnings and growth behind that breakaway stock performance also earned Lululemon the benefit of the doubt when things went wrong, like the aborted venture into home fitness technology with the Mirror acquisition. And analysts leaned toward patience when McDonald laid out some merchandising course corrections in its flagging U.S. business earlier this year.
But now the market needs proof as U.S. comparable sales fell 3 percent in constant dollars in the second quarter and have been flat or down for the last six quarters.
Sharon Zackfia, an analyst at William Blair, downgraded the stock to Market Perform due to “the combined impact of uncertainty on the timing of a U.S. sales turnaround, a much greater-than-expected impact from tariffs given the discontinuation of the de minimis provision, and emerging signs of macro noise in China.”
“As a result, we now essentially project Lululemon will lose a year of earnings, with our new 2026 EPS estimate of $14.18 below our incoming 2025 EPS estimate of $14.41,” Zackfia said. “Ultimately, this is now a 2026 show-me story when new product hits in the spring, and we see little in the way of catalysts in the interim.”
The Vancouver-based company said it would take a $240 million hit to profit outlook this year due to trade war tariffs and the early removal of the de minimis exemption.
The tariffs are hitting everybody. But the de minimis change, adding tariffs to shipments valued under $800, came as a surprise. (The so-called loophole was used heavily by Shein and Temu, but was less discussed when it came to higher-end brands, although Tapestry recently said the change would cost it $53 million this fiscal year).
Two-thirds of Lululemon’s orders are fulfilled through Canada and therefore were coming in with no duty payments.
“This is a far higher percentage than we anticipated,” said John Kernan, an analyst at TD Securities. “Lululemon maintains ample DC and ship-from-store capacity in the U.S., but the financial incentive was huge — [an over] 250 basis point unsustainable annual benefit to gross margin. We are disappointed we missed this and that the loophole was being used to this extent without more disclosure on risk.”
Kernan said a “strategic pivot” that went beyond the planned changes to the casual social and lounge product was needed as the company enters “a new phase.”
McDonald knows the brand’s in a new place.
“Lululemon has been in a period of hyper growth for several years, more than tripling our revenue in just six years, and we have successfully managed through a number of market shifts,” the CEO told analysts last week. “We are facing yet another shift today within the industry related to tariffs and the cost of doing business. The increased rates and removal of the provision have played a large part in our guidance reduction for the year as we navigate current market dynamics.”
And he has some backers still even in a sea of analyst downgrade.
Needham’s Tom Nikic stuck with his Buy rating for Lululemon and said “we hope that Q2 was a ‘clear the deck’ event, but we expect it to take time before investors warm up to this name again.”
And CFRA Research’s Zachary Warring, analyst from CFRA Research, kept his Strong Buy on the company even though he described management as “pessimistic.”
“Shares trade around 13-times consensus EPS estimates for the next 12 months, well below historical and peer multiples,” Warring said. “We are well aware of the product issues and tariff headwinds; however, we continue to believe significant value remains in shares for patient investors.”
The problem for Lululemon is that patience isn’t all that common a virtue in the investment set.
The Bottom Line is a periodic business analysis column written by Evan Clark, deputy managing editor, who has covered the fashion industry since 2000.