Lululemon's (LULU 1.81%) year-over-year results are slowing down a bit, and conservative guidance based on slower spending expectations for the consumer make the pullback in the stock seem justified. Lululemon has been a gem at times for investors, but the uncertainty over the market now makes it seem like a tricky stock to navigate.
On the surface, things looked good, but still slower than the past. Excluding the 54th week included in fiscal 2024, revenues gained 8%. That's considerably slower than in the past few years. In all, peak revenue growth occurred in 2022, and things have been slowing down ever since.
Right now the story of Lululemon is a one of high prices at a time when the consumer appears to be being more careful. The company's own CEO pointed this out on the company's fourth-quarter earnings call. Lululemon CEO Calvin McDonald said they Lululemon was seeing weaker consumer demand, despite a fourth-quarter increase in revenue of 13%.
This is a stock of confusing conundrums. On the one hand, it reported earnings and revenues that outpaced 2023. On the other hand, the CEO is a bit timid on what the figures will be like moving forward. Specifically, shares have given up over 29% year to date (at the time of this writing) as fears over tariffs and a weakened consumer weigh on these types of stocks.
NASDAQ: LULU
Key Data Points
Tariffs
Ah, the word that has roiled the market over the last few weeks. President Donald Trump's tariff war with overseas nations as well as our neighbors puts pressure on companies like Lululemon that rely on cheap costs associated with some Asian countries to produce their products.
The primary source of pain for Lululemon is new tariffs on Vietnam, which according to MarketWatch produces 40% of its products. The last thing Lululemon needs right now is to have price increases on goods. It is already one of the expensive players in the yoga-pants business. As mentioned earlier, CEO McDonald has noted weaker demand, and price increases would only intensify that problem. Therefore, it seems likely that Lululemon may be forced to simply eat the cost and keep prices stable. Either way, it's a headache for the stock.
I'll extend one olive branch. The company knows how to make the most of its revenue. Overall net income increased nearly 83% in 2024 to $12.20 per diluted share. That said, this might not be the time to fiddle around with Lululemon shares. The company is directly in the crosshairs of Trump's tariff war, which could stand to go on for years. Even if companies react and move production, that takes time and money. Either way you swing it, this is a tough time to be super bullish on apparel companies like Lululemon. Simply being invested in the S&P 500 would have netted you a better performance over the last year.
Image source: Getty Images.
Guidance
Looking ahead, Lululemon provided 2025 guidance including expectations for diluted earnings per share of $14.95 to $15.15. Conservatively that would mark a 2.1% increase year over year; far from the growth we've seen in the past. Revenues are also expected to be slower, increasing 5% to 7%.
In all, I think there are justifiable reasons that the stock is down this year. Tariffs are adding weight to what is already a more cautious consumer, making it hard for Lululemon to find its place in the equation. For now, I say stay away, as I don't see the stock rebounding anytime soon.
