TLDR;
The video analyzes Lululemon (LU) stock, focusing on its recent tumble due to lowered revenue and EPS guidance for 2025. The primary factors are softness in the US market and the impact of higher tariffs. The analysis estimates a significant negative impact on upcoming quarterly EPS and adjusts the fair value of the stock downward.
- Lululemon's stock has recently declined due to lowered revenue and EPS guidance.
- Softness in the US market and higher tariffs are the main reasons for the revised outlook.
- The analysis projects a notable negative impact on the upcoming quarterly EPS.
- The fair value estimate is adjusted downward to $182.61, suggesting potential downside at the current trading price.
Introduction: Lululemon's Stock Tumble [0:00]
The host introduces Lululemon (LU) and the recent decline in its stock price. The video aims to determine if this drop is a buying opportunity or a value trap. The current market sentiment is influenced by Lululemon's Q2 2025 earnings report, where the company missed revenue expectations and significantly reduced its full-year 2025 revenue and EPS guidance. This was primarily attributed to weakness in the US business and the impact of increased tariffs, leading to analyst downgrades and investor caution.
Lululemon's Business Overview [1:01]
Lululemon is described as a major athletic apparel and accessories company that designs, distributes, and retails gear for both women and men. Their product range covers various activities, including yoga, running, and general training. While the women's product line accounts for the majority (63%) of revenue, the men's segment contributes a solid 24%, indicating good diversification. The US market is critical, generating over 53.5% of total revenue, with China being another significant and growing market at nearly 24%.
Impact of US Softness and Tariffs [1:42]
The softness in the US business is particularly impactful because over half of Lululemon's revenue comes from the US. Combining this with higher tariffs has forced the company to lower its full-year guidance significantly. The estimated impact of the US weakness and tariffs could result in a 4% to 6% reduction in overall revenue expectations from previous forecasts. Due to Lululemon's operating leverage, this midsingle-digit percentage hit to revenue could translate into a double-digit percentage decline in earnings per share.
Projected Impact on Earnings Per Share (EPS) [2:24]
Based on the analysis, which factors in a reported gross margin of around 23.7%, the projected negative impact on Lululemon's upcoming quarterly EPS could be approximately a 12% drop relative to previous expectations before the guidance cut. The confidence interval for this projection ranges from -7% to -17%. The terms "softness" and "significantly lowered guidance" are qualitative, and the specifics of the guidance revision were not fully public, contributing to this range.
Valuation and Potential Entry Points [3:12]
A base-case discounted cash flow (DCF) analysis initially suggested a value around $220.61. However, after adjusting the model to incorporate the new, more cautious narrative and the projected 12% impact on future earnings, the fair value estimate drops to about $182.61. With the stock currently trading around $269, it may still have some downside as the market fully incorporates the revised outlook. Potential buy levels to watch, according to a custom buy level analysis, could be around $170, $130, or even $110.
Conclusion and Disclaimer [4:02]
The dominant narrative for Lululemon is that US business softness and tariffs are impacting future guidance, leading to an estimated 12% negative hit to the upcoming quarterly EPS relative to prior expectations. While the base case valuation was around $220, the adjusted fair value, factoring in the negative narrative, drops to approximately $182.61. This suggests the stock may still have downside at its current price. The potential buy levels mentioned are areas to observe for a more attractive entry point. The host reminds viewers that this analysis is not financial advice and encourages them to conduct their own research and consult with a financial professional before making investment decisions.