On September 8, a caller asked whether lululemon athletica inc. (NASDAQ:LULU) can recover and if the stock is a buy, hold, or sell given its low price-to-earnings ratio, new leadership, and perceived loss of direction. In response, Mad Money host Jim Cramer said:
I think that this year, whatever’s going on at that company is just abysmal, whether it be the board, whether it be the execution, whether it be the way that the message, I don’t like it. I don’t like it even right here because it’s still got a lot of points that it can fall. I think that it’s, you know, look, it’s at 10 times earnings, but I don’t think it’s going to make those earnings. So, at $103, no, I’m going to say maybe, I don’t know, $85… I don’t want to say it’s a bad company, but it is executing really poorly.
Lululemon Earnings Show Why the Bear Case is Growing
The warning follows a weak second quarter. Revenue fell 4% to $2.4 billion, comparable sales declined 9%, and Americas revenue fell 8%, with its comparable sales down 12%. lululemon athletica inc. (NASDAQ:LULU) cut its fiscal 2026 revenue forecast to $10.35 billion-$10.50 billion from $11 billion-$11.15 billion and reduced EPS guidance to $9.48-$9.73 from $10.95-$11.15. The weakness extends to the company’s core product. Leggings sales fell approximately 20% in the second quarter, while Reuters also reported that Lululemon’s share of the athleisure market fell to 43.9% in August as Alo Yoga and Vuori gained share.
Management has also acknowledged weaker product reception. Interim Co-CEO Meghan Frank said the company expected its plan to take time to gain traction but “expected a better response than we are seeing as we enter the second half of the year.” Executives also cited negative online narratives about the brand and a softer-than-planned response to some new product launches. The risk is that these efforts will take time while sales and earnings remain under pressure. The company expects third-quarter revenue of $2.29 billion-$2.32 billion, a 10%-11% decline from a year earlier.
Hedge Fund Ownership of LULU Fell in Q2
Insider Monkey’s tracking of more than 1,000 hedge funds shows 51 hedge funds held Lululemon in the second quarter, down from 61 in the first quarter. Of those hedge funds, Citadel Investment Group was the quarter’s biggest shareholder after increasing its holdings by 84% to 1.07 million shares. Short interest provides another measure of market caution, as it stood at approximately 9%-11% of the float.
The stock closed at $103.19 on September 8, more than 50% below its 52-week high of $225.98. The lower valuation offers a different starting point for the new CEO Heidi O’Neill than lululemon athletica inc.’s (NASDAQ:LULU) previous growth period, but the company must first reverse declining comparable sales and weaker product demand. Until that happens, Cramer’s roughly $85 downside scenario remains a material downside scenario for LULU investors.
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