Lululemon running out of steam

There are no signs of recovery for the sportswear brand, whose tidal wave - now a thing of the past - is leaving nothing but flotsam and jetsam in its wake.

In constant dollars, revenue growth has been virtually flat over the last twelve months, while operating profit is suffering from margin compression - a direct result of fierce competition since Lululemon popularized yoga wear.

This stagnation is occurring despite new store openings and sharply increasing inventory levels. This combination is weighing on cash flows and has forced the group to slash its share buybacks by a full quarter. This is a regrettable development, given the continuous slide of the stock price over the period.

MarketScreener already pointed out that, after saturating the American market at lightning speed, Lululemon bet on China to maintain its impressive growth rate. On this point, see Lululemon goes all-in on China, published in March 2025 in these columns.

While the recipe is working well in Asia, it is unfortunately only absorbing the decline in sales observed in North America, which still represents 71% of consolidated revenue, slightly under the 75% of the previous year.

Following the dismissal of Calvin McDonald, Lululemon has been without a CEO for several weeks. Behind the scenes, the mercurial founder Chip Wilson retains disproportionate influence and remains in open conflict with the board of directors representing his fellow shareholders.

Well-capitalized, on the stockmarket Lululemon is trading at 12x its earnings. The brand's fans will note that this is undoubtedly an attractive level for those wishing to acquire shares.

Meanwhile, less passionate observers will note that the market had perfectly anticipated the sharp slowdown in growth, particularly following the emergence of formidable competition determined to challenge Lululemon's quite extraordinary, and frankly unsustainable, margins.

This is further proof that in the textile sector, which is certainly subject to powerful fashion trends, it remains very difficult to defend any pricing power over the long term. Lululemon is just the latest example here, joining the already large battalion of brands that were once stars, but have now fallen off their pedestals.

Now that the all-in bet on China seems to be working - which is good news in itself - it is on its domestic market that Lululemon must absolutely turn things around. Faced with a plethora of competition and a saturated landscape, however, hopes of regaining lost market share seem very slim.