Shares of Lululemon Athletica (LULU 4.62%) plunged on Friday, falling 14.3% as of 11:45 a.m. ET.
Lululemon reported fiscal fourth-quarter earnings last night, and while last quarter's results beat expectations, its guidance disappointed Wall Street. Moreover, the company's CEO mentioned it has seen signs of a cautious consumer, feeding today's worries over tariffs and a spending pullback in U.S. consumers.
NASDAQ: LULU
Key Data Points
Q4 results were not enough to quell 2025 fears
In the fiscal fourth quarter ended on Feb. 2, Lululemon reported $3.6 billion in revenue, up 13%, with earnings per share up 16% to $6.14. Both figures came in ahead of expectations.
However, results weren't quite as robust as they looked at first glance. That's because the company's fourth quarter had one extra week compared with 2023. Absent that, revenue would have been up a respectable 8%, but certainly not as robust as the reported figures.
Management also guided for some deceleration in the first quarter, forecasting growth between 6% and 7%. For the full year 2025, Lululemon forecast revenue between $11.15 billion and $11.3 billion, which would represent growth of 5% to 7%, or 7% to 8% excluding the impact of the extra week in 2024.
The forecast doesn't seem that bad in light of current macroeconomic pressures but nevertheless was below analysts' expectations. Perhaps more worrying was the composition of growth. In the fourth quarter, U.S. comparable store sales were just flat, while much of the strength came from China. So, there are certainly some questions around the sustainability of growth if ongoing U.S.-China trade tensions increase.
CEO Calvin McDonald also added cautious comments on the conference call with analysts:
... based on a survey we conducted earlier this month in conjunction with Ipsos, consumers are spending less due to increased concerns about inflation and the economy. This is manifesting itself into slower traffic across the industry in the U.S. in quarter 1, which we are experiencing in our business as well. However, we see guests who visit us responding to the newness and innovations we've brought into our assortment.
Is Lululemon a buy on the dip?
After its decline today, Lululemon trades at 19.5 times the current year's guided earnings expectations of $15.05 at the midpoint. That's at the lower end of the five-year forward P/E range, which has typically averaged around 30 times, at least prior to last year.
LULU PE Ratio (Forward) data by YCharts
On the other hand, Lululemon is also a more mature company now, so it may make sense for its multiple to come down. While the stock could be a buy here, Lululemon's near-term success will be determined by the mood of U.S. consumers as well as China's willingness to buy a North American brand of apparel. Both of those prospects are highly suspect at the moment.
