Stock markets around the world have entered a period of rising volatility—and with that comes a renewed focus on risk. For long-term investors, the next few quarters are going to require deeper scrutiny, not just of earnings and valuations, but of the underlying risk factors shaping each company’s future.
That's why I’m placing a stronger emphasis on risk analysis across the companies I follow. In this breakdown, we’re going to take a deep dive into Lululemon, one of the most prominent names in the athleisure space, and walk through three major risks that every investor should understand before buying, holding, or selling the stock.
Looking Ahead: Earnings in Focus
Investors are now turning their attention to Lululemon’s upcoming earnings report. Wall Street analysts are projecting earnings of $2.60 per share, which would represent a 2.36% increase year-over-year. Revenue expectations are similarly upbeat, with consensus estimates calling for $2.35 billion, up 6.57% from the same quarter last year.
Looking at the full-year outlook, analysts currently expect Lululemon to generate $14.91 in earnings per share and $11.19 billion in revenue. If these figures hold, they would mark annual growth of 1.84% in earnings and 5.69% in sales compared to the previous fiscal year.
Risk #1: Macroeconomic Pressure and Shifting Consumer Behavior
Even with impressive top-line growth—Lululemon posted a 10% increase in revenue in 2024—the numbers start to tell a different story when you zoom in on the U.S. market. In Q4, same-store sales in the Americas division were flat, and for the full year, they actually declined by 1%. That’s a notable signal that consumer behavior is shifting—and not in Lululemon’s favor.
What’s Causing the Shift?
The U.S. consumer is under pressure. While headline economic data like GDP growth and unemployment have held up reasonably well, real wage growth has stalled. Meanwhile, the cost of living continues to climb, especially in key categories like housing, food, and healthcare.
When discretionary income shrinks, so does the budget for non-essential items—including premium athleisure apparel. Lululemon’s core product line is positioned at the high end of the market. This makes the brand especially vulnerable when consumers start making trade-offs.
Why This Time Is Different
Back in 2020 and 2021, when inflation first emerged, government stimulus and improved household balance sheets helped cushion the blow. Consumers had excess savings and were still willing to pay up for quality, branded goods.
But we’re in a different environment today.
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Stimulus programs have ended
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Savings rates have declined
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Credit card debt is at record highs
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Interest rates remain elevated
In other words, consumers today have less financial cushion—and they’re starting to pull back on spending. This presents a key headwind for a brand like Lululemon that relies on consumer willingness to pay a premium.
Risk #2: Tariffs and Global Supply Chain Vulnerabilities
The second risk is tied to Lululemon’s supply chain—specifically, its exposure to rising tariffs and geographic concentration in Southeast Asia.
Lululemon sources a significant portion of its manufacturing from countries like:
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Vietnam
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Cambodia
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Sri Lanka
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Indonesia
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Bangladesh
These regions are now facing increased tariffs, which could disrupt production economics and erode margins.
What's Happening with Tariffs?
Although some tariff increases have been temporarily paused, a baseline 10% tariff still applies to many of these imports. If tariff levels return to where they were under previous policy proposals—in the 20–30% range—Lululemon’s cost of goods sold could rise meaningfully.
And while the company does have some flexibility to shift production among different countries, it’s not a seamless transition. Reconfiguring supply chains takes time, investment, and carries execution risk—especially when geopolitical uncertainty is still elevated.
Profitability at Risk
Lululemon enjoys some of the highest margins in the industry, which gives it short-term breathing room. But higher input costs combined with lower pricing power in a softening consumer environment could lead to compressed margins and downward pressure on earnings.
Investors need to be aware of this double impact:
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Higher cost of goods sold from tariffs
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Lower pricing flexibility due to macro headwinds
This combination could weigh heavily on profitability over the next 12 to 18 months.
Risk #3: Intensifying Competition from Industry Giants
The third major risk is one that tends to sneak up on investors: competitive pressure.
Lululemon has carved out a valuable niche in the premium athleisure segment, and its focus on product innovation—especially in fabric technology—has helped it establish strong customer loyalty. But competitors have taken notice, and they’re coming for a piece of that pie.
Nike and Adidas Are Targeting Lululemon
Nike, in particular, has been making aggressive investments in material R&D to close the innovation gap with Lululemon. Over the past six months, they’ve launched several new fabric lines that aim to match (or even surpass) the comfort and performance features that define Lululemon’s best-selling products.
This matters because:
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Nike has massive distribution capabilities
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It has the scale and capital to compete on pricing
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It’s also pushing direct-to-consumer harder, just like Lululemon
Even if Lululemon retains its loyal customer base, margins could come under pressure as price competition ramps up and alternatives become more compelling.
And it’s not just Nike—emerging brands and online-native competitors are also capturing attention in the wellness and athleisure space, which threatens to erode market share over time.
Valuation & Final Verdict
I’ve updated my discounted cash flow model for Lululemon and arrived at an intrinsic value of $238 per share. With the stock currently trading at around $251, it appears to be fairly valued, with little margin of safety for new buyers at current levels.
That’s why I’ve downgraded Lululemon to a Hold.
Three months ago, I had it as a borderline Buy—but since then, the risk landscape has clearly worsened. Elevated tariffs, macroeconomic uncertainty, and intensifying competition all introduce new variables that could weigh on both growth and profitability.
From a valuation perspective, Lululemon is trading at a forward price-to-earnings (P/E) ratio of 17.56, which represents a meaningful premium over the industry average of 11.68.
Another key metric, the PEG ratio—which adjusts the P/E for expected earnings growth—currently stands at 2.21 for LULU. This is also above the Textile-Apparel industry average of 1.57, suggesting that investors are still pricing in a growth premium, even as earnings momentum slows.
Conclusion
The upcoming earnings report will be a key moment for the stock—both as a gut check on fundamentals and as a potential catalyst for renewed investor confidence. Until then, the market appears to be taking a wait-and-see approach.
If you already own shares: I don’t think there’s a strong case to sell—yet. The fundamentals remain solid, and management has shown discipline in navigating past challenges.
If you’re considering buying: I would hold off until the next earnings report. We need more clarity from management on how they plan to address these new risks—particularly the impact of tariffs and evolving consumer behavior.
This isn’t a broken business by any means—but it is a company facing elevated uncertainty. And in uncertain environments, the best strategy is patience and discipline.
Let’s revisit the situation after Lululemon reports next quarter. By then, we’ll hopefully have a clearer picture of:
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How tariffs are impacting input costs
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How consumer spending is trending
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And how management plans to defend market share and maintain profitability
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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