Lululemon Athletica (LULU 1.88%) stock has rebounded significantly recently, rising more than 20% over the last 30 days alone. That is a notable shift after shares slid earlier this year as cooling U.S. demand and a contracting profit margin spooked investors.
With fresh data from the company's latest earnings report to mull over, it's a good time to take a look at the stock to see if shares look attractive. After all, even though the stock has been on a roll over the last month, it is still down more than 45% year to date as of this writing. Maybe the stock is still oversold?
There's certainly a lot to like about the business. Sure, the athletic-apparel retailer is still working through a sluggish U.S. backdrop. But its international business keeps delivering rapid growth -- especially in China. In addition, management's latest financial update also included higher full-year guidance and a larger share repurchase authorization.
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International momentum
Third-quarter results highlighted why the recent bounce is not just sentiment-driven, but is instead powered by fundamentals.
Lululemon's fiscal third-quarter revenue rose 7% year over year to $2.6 billion. But the split by geography mattered more than the headline number. The company's Americas revenue fell 2%, and comparable sales in the region fell 5%. International revenue, however, jumped 33%, and international comparable sales rose 18%. That was an acceleration from the second quarter of fiscal 2025, when international revenue grew 22% year over year.
China Mainland was the standout. Revenue there rose 46% year over year to $465.4 million, and comparable sales climbed 24%.
Also impressive, Lululemon's "rest of world" revenue increased 19% to $367.2 million.
With momentum like this internationally, investors have a reason to look past weakness domestically.
A strong finish to the year
Strengthening the bull case for the stock, Lululemon expects a notable finish to the year.
"As we enter the holiday season, we are encouraged by our early performance," said Lululemon CEO Calvin McDonald in the company's third-quarter earnings release.
On this note, management said in its fiscal third-quarter update that it now expects revenue between $10.96 billion and $11.05 billion, representing growth of 4% year over year, or 5% to 6% excluding the 53rd week in 2024. Previously, management was expecting full-year revenue to be between $10.85 billion and $11 billion.
NASDAQ: LULU
Key Data Points
A low bar
Of course, there are some concerns. In addition to Lululemon experiencing softness in the U.S., profitability is currently under pressure. The company's third-quarter gross margin, for instance, fell 290 basis points to 55.6% -- and operating margin fell 350 basis points to 17%. Management pointed to higher tariffs and markdowns as key contributors to the decline in gross margin. Additionally, Lululemon concluded the third quarter with inventories up 11% year over year to $2.0 billion. An increase in inventory could lead to greater promotions if demand comes in weaker than expected in the weeks ahead. Of course, higher inventory could also help if the holiday demand is better than expected.
Additionally, Lululemon announced a CEO change, which will be effective early next year, alongside its third-quarter results. This adds uncertainty about Lululemon's future.
Despite these challenges, the stock still looks attractive. And we can thank a cheap valuation for that. Put another way, Lululemon's problems are arguably priced in -- even after the stock price's recent move higher. With shares around $205 as of this writing, the stock trades at roughly 16 times management's full-year 2025 earnings per share guidance of $12.92 to $13.02. This is well below the S&P 500's price-to-earnings ratio of more than 25 as of this writing.
Share repurchases also bolster the bull case. During the fiscal Q3 alone, Lululemon repurchased 1.0 million shares for $189.0 million, and its board approved a $1.0 billion increase to the repurchase program, leaving about $1.6 billion authorized for buybacks as of Dec. 11.
Ultimately, I believe shares continue to trade low enough to make them attractive. Of course, given the risk of demand in the U.S. deteriorating further and the speed at which fashion trends change, investors should keep any position in the stock small. Overall, however, I'm bullish on Lululemon stock over the long term.
