Lululemon Stock Drops Below 200 Day MA as YTD Decline Reaches 24%

Lululemon's stock price (NASDAQ: LULU) has come under increasing pressure since earnings, with the past 5 trading days (-17.48%) making up a significant portion of the year-to-date decline (-23.97%).

Fourth-quarter earnings comfortably surpassed Wall Street estimates but simultaneously issuing forward guidance for a potentially significant slowdown particularly within its core US market has seen the bears pile on the pressure.

The company posted impressive revenue of $3.61 billion, a 13% increase year-over-year (or 8% excluding the benefit of an extra week in the fiscal year) and notably ahead of analyst consensus estimates clustered around $3.57 billion to $3.58 billion. Profitability was even more striking, with diluted earnings per share (EPS) landing at $6.14, significantly exceeding forecasts ranging from $5.82 to $5.97 and marking a substantial jump from $5.29 reported in the prior-year period.

This was underpinned by improved gross margins, which expanded 100 basis points to 60.4%, aided by easing freight costs, and stellar international growth, highlighted by a remarkable 38% revenue surge in Greater China.

However, the positive momentum from the backward-looking results was quickly overshadowed by management's cautious forecast for the upcoming fiscal year. For the first quarter of fiscal 2025, Lululemon projected revenue growth of just 6-7% (targeting $2.335B-$2.355B), falling short of the analyst consensus closer to $2.39 billion. Similarly, the company's Q1 EPS guidance of $2.53-$2.58 lagged the Street's expectation of around $2.74. This conservatism extended to the full-year outlook, with Lululemon forecasting revenue growth of 5-7% (or 7-8% adjusted for 2024's extra week) to $11.15B-$11.30B, slightly below the $11.33 billion consensus. Full-year EPS guidance of $14.95-$15.15 also trailed the expected $15.36.

This outlook appears driven primarily by concerns surrounding the North American market, where management implicitly signaled potential deceleration amidst broader macroeconomic uncertainties and shifting consumer spending patterns. While international markets, especially China, continue to fire on all cylinders, the softer guidance suggests potential headwinds in maintaining the brand's premium pricing power and driving traffic in its most mature market, particularly as competition intensifies from rivals like Alo Yoga and Vuori.

From a technical perspective, the stock price currently trades below its 50-day simple moving average (~$362), often interpreted as a near-term bearish signal. LULU has also fallen below the 200-day simple moving average (~$318) in the past two sessions, suggesting longer-term support may be giving way.

🟩 The Bull Case for Lululemon Athletica Inc. (NASDAQ: LULU)

• Proven Execution & Brand Strength: Delivered significant Q4 revenue and EPS beats, showcasing operational resilience.
• Powerful International Growth: Strong momentum, particularly in Greater China (+38% Q4 revenue), offers a substantial runway for expansion outside North America.
• Margin Enhancement: Demonstrated ability to improve gross margins (Q4 +100bps to 60.4%) through efficiencies like lower freight costs.
• Positive Long-Term Analyst View: Majority maintain “Buy” / “Moderate Buy” ratings, with average price targets indicating significant potential upside.
• Relative Sector Strength: Has outperformed the struggling US Luxury industry significantly over the past year.

🟥 The Bear Case for Lululemon Athletica Inc. (NASDAQ: LULU)

• Disappointing Forward Guidance: Q1 and FY2025 outlook for revenue and EPS growth fell short of expectations, signaling a marked slowdown.
• US Market Deceleration Risk: Guidance implies potential softening in the crucial US market due to macro pressures and consumer behavior shifts.
• Rising Competitive Intensity: Faces increased pressure from both established players and nimble competitors like Alo Yoga and Vuori.
• Recent Stock Weakness: Share price has underperformed the broader market over the past year and shows recent negative momentum (1, 3, 12-month declines).
• Near-Term Technical Pressure: Stock is currently trading below its 50-day moving average, indicating potential short-term headwinds.
• Valuation Concerns: Slower growth outlook could make the stock's valuation harder to justify if execution falters or economic conditions worsen.

Despite the near-term growth moderation implied by the guidance, Wall Street analysts largely maintain a constructive long-term view on Lululemon. The consensus rating remains a “Buy” or “Moderate Buy”. Average 12-month price targets generally range from $398.96 to $423.05, suggesting analysts see considerable potential upside from current trading levels, even though some targets were recently trimmed in response to the softer outlook.

The first major steps for bulls would be the 200 day MA, and some of the psychologically important support levels starting at $300. In the short term, the bears may be in charge until markets see a fundamental improvement in outlook.