Down 51.9% YTD, Is Lululemon Stock a Buy Before December 11?

2025 has, so far, been a painful year for Lululemon Athletica (LULU) shareholders. The stock has fallen 51.9% so far this year, a sharp drop that reflects not only slowing sales in the United States, but also a changing landscape across the sports apparel space. Consumers have become cautious about discretionary spending, especially on activewear, and Lululemon has struggled to keep up with changing tastes.

During the latest earnings call, Lululemon management said its once trend-setting products are now seen as predictable, and new casual and social pieces are failing to excite shoppers. Customer visits and purchasing frequency have slowed, a sign that the product portfolio is not generating the same spark as before.

External pressures have exacerbated the problem. Competition from both premium rivals and emerging challengers has intensified, and tariff changes have affected profitability. A significant portion of Lululemon’s online orders in the US are placed from Canada, a country that was previously protected by the $800 minimum threshold. With that protection removed, Lululemon’s margins came under significant pressure.

However, LULU stock is gaining positive momentum ahead of its third-quarter earnings on December 11. LULU stock has gained about 10.7% over the past month. Despite this recent rally, investors should remain cautious. Historically, Lululemon shares have fallen following earnings announcements in each of the last three quarters. Currently, options traders are pricing in a potential post-earnings move of about 10.1% in either direction, which is below the stock’s four-quarter average move of 17.1%.

Lululemon’s third-quarter results are expected to reflect ongoing challenges as the company navigates cost pressures and slowing demand. Management is working to offset these headwinds through price adjustments, supplier negotiations and cost-cutting initiatives, but these measures will likely take time to improve its finances.

Revenue growth is expected to slow sequentially. Lululemon projects third-quarter revenue in the range of $2.47 billion to $2.5 billion, representing a 3% to 4% increase year over year. This marks a slowdown compared to the 7% growth the company achieved in the first half of fiscal 2025. While new store openings may provide some support, persistent weakness in the US market could impact overall sales.

Lululemon’s margins are expected to remain under pressure. Gross margin for the quarter is projected to decrease approximately 410 basis points compared to the third quarter of 2024, driven primarily by higher tariffs, the elimination of the de minimis exemption and continued investment in its distribution center project. The combined impact of the tariffs and the de minimis exemption is estimated to reduce margins by about 230 basis points. Additionally, markdowns due to seasonal clearance activity could further reduce profitability.

As a result, Lululemon management expects third-quarter earnings per share (EPS) in the range of $2.18 to $2.23, reflecting a decline of 22% to 24% compared to the prior year. Analysts are currently forecasting EPS of $2.22 for the quarter, down 22.7% year over year. Despite these near-term headwinds, Lululemon has a track record of exceeding expectations, having beaten analysts’ EPS forecasts for the last four consecutive quarters.

Lululemon stock has taken a significant hit so far this year, dragging down its gains. LULU shares trade at a forward price-to-earnings ratio of 14.2 times. Historically, this seems like a bargain for a company that has achieved impressive growth in the past and has one of the most powerful brands in sportswear.

However, demand in North America, particularly the US, has weakened for Lululemon and rising costs are putting pressure on the company’s profitability. These headwinds, along with growing competition, suggest that LULU stock is unlikely to post a quick rebound. Reflecting this cautious sentiment, Wall Street analysts are maintaining a “Hold” consensus rating on Lululemon stock ahead of earnings.

On the date of publication, Amit Singh had no (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com