Lululemon Athletica Inc

Lululemon (NASDAQ: LULU) reported weak earnings in 1Q25 and 2Q25, with revenue growth of only +7% in 2Q25. While it continues to face headwinds in its core US market (~56% of revenues), with subdued growth of +0% YoY, it is still outperforming its larger competitors, such as Nike, by -7% and gaining market share. However, Lululemon has been relying on the identical product playbook across specific categories for too long, and its core product offerings have become stale. Customers are less responsive, leading them to buy from other new brands. While Lululemon’s products are of higher quality, it needs to infuse new energy and innovation into its product playbook to attract and retain customers.

During the third quarter, we have opened a position in Lululemon Athletica Inc. Lululemon is a premium athletic apparel company that has built a distinctive market position by combining high-quality, technically advanced fabrics with fashionable designs. The company has grown its revenue from approximately $4B in 2020 to $11B in the trailing twelve months, while maintaining average gross margins of roughly 58%. Lululemon’s high margins are the direct result of its intangible brand asset, and its performance through challenges suggests that its brand is strong enough to consistently outperform peers. The company has been aggressively buying back stock, and we hope it continues to do so.

Lululemon was one of our bigger losers for the quarter; we sold a few shares in the initial tariff downturn, and then a few more right before its Q1 earnings report when I thought shares had risen too much. The U.S. recovery hasn’t manifested yet for Lulu, and its international growth is strong but not as strong as I hoped. It trades legitimately cheaply now, and I think will work out over time, but we missed a chance to sell more at the start of the year.

Lululemon was one of our bigger losers for the quarter; we sold a few shares in the initial tariff downturn, and then a few more right before its Q1 earnings report when I thought shares had risen too much. The U.S. recovery hasn’t manifested yet for Lulu, and its international growth is strong but not as strong as I hoped. It trades legitimately cheaply now, and I think will work out over time, but we missed a chance to sell more at the start of the year.

Late in the quarter, we purchased shares in Lululemon, despite uncertainty about the tariff situation. Lulu is a leading athleisure brand and though competition has increased from upstart offerings, the company has continued to maintain relevance and perform admirably. Importantly, this share has predominantly come from Nike, which continues to see negative topline growth. Although U.S. Women’s has slowed, Lulu is driving growth in the men’s market and expanding geographically to China and Europe. We think this is near a trough in growth rate as Lulu has taken steps to better position itself. EPS growth will be closer to the double digit range as the company repurchases shares at the most aggressive rate in its history. We believe this is a very reasonable price for a truly great company with durable competitive advantages and growing visibility into accretive, long-term growth.

Late in the quarter, we purchased shares in Lululemon, despite uncertainty about the tariff situation. Lulu is a leading athleisure brand and has maintained relevance and performed admirably against increased competition. Although the U.S. Women’s market has slowed, Lulu is driving growth in the men’s market and expanding into China and Europe. The company is at a mid-single digit free cash flow yield with top line growth in the mid to upper single digits. We believe this is near a trough in growth rate, and with aggressive share repurchases, EPS growth will approach double digits. The current P/E is reasonable for a company with durable competitive advantages and long-term growth potential.

Late in the quarter, we purchased shares in Lululemon, despite uncertainty about the tariff situation. Lulu is a leading athleisure brand and though competition has increased from upstart offerings, the company has continued to maintain relevance and perform admirably. Importantly, this share has predominantly come from Nike, which continues to see negative topline growth. Although U.S. Women’s growth has slowed, Lulu is driving growth in the men’s market and expanding geographically to China and Europe. We think this is a very reasonable price for a truly great company with durable competitive advantages and growing visibility into accretive, long-term growth.

Lululemon's strong pricing power and high gross profit margins of approximately 59% position it well to navigate the challenges posed by sourcing fabrics from Mainland China. Despite the potential impact of trade tariffs, the company's premium product offerings should help offset any cost increases. This resilience in their business model, combined with their ability to maintain profitability, reinforces our positive outlook on Lululemon as a valuable holding in our portfolio.

Lululemon's strong pricing power and high gross profit margins of approximately 59% position it well to navigate the challenges posed by sourcing fabrics from Mainland China. Despite potential tariff impacts, the company's premium product offerings should help offset any cost increases. This resilience in their business model, combined with their ability to maintain profitability, reinforces our positive outlook on Lululemon as a valuable holding in our portfolio.

Lululemon's strong pricing power and high gross profit margins of approximately 59% position it well to navigate challenges posed by sourcing fabrics from Mainland China. Despite potential tariff impacts, the company's premium product offerings should help offset any cost increases. This resilience in their business model, combined with their ability to maintain profitability, reinforces our positive outlook on Lululemon as a valuable holding in our portfolio.