The Art of Slowing Down
158: Lululemon Stock Crashes 35% - Why Intern Pierre Subscribers Saw This Coming
One of the reasons I started Intern Pierre was to give regular people and industry professionals access to insights that we as investment professionals pay €100.000+ a year for. On June 10th I sent out a call transcript from a call with a former Lululemon executive and at the time Lululemon stock was $258.50. As of this writing the stock is at $167.80 which represents approximately a 35% decline in the share price. Not a bad return if you had shorted the name for the past three months for a €5 / month subscription!
I’ve updated subscribers on the name including a detailed write up on August 12 and call transcripts with various industry professionals which include formers from Lululemon and people from brands like Alo, On and Vuori.
Lululemon’s stock was down almost 20% following their earnings call where they reported a Q2 “beat”. This “beat” was aided by a stock-comp accrual reversal (+$0.15), which masked a top-line miss and a broad guidance reset. The company mentioned that the US was expected to decline 1–2%; EPS was cut to $12.77–$12.97 vs $14.64 last year.
As I have mentioned and as numerous formers and industry professionals have said on expert calls, Lululemon management finally conceded the US product assortment, especially casual/lounge franchises like Scuba, Softstreme, and Dance Studio, has gone stale. Just a thought, but maybe hiring a Chief Product Officer would be helpful here! In-quarter momentum deteriorated, and like many other brands I cover, high-value long-tenured clients are spending less unless presented with truly new product.
Looking at the margin picture, it is deteriorating. Q2 gross margin fell 110 bps to 58.5% on heavier markdowns and tariffs (I had mentioned the “We Made Too Much” section of their website had quite a bit of popular items listed). FY25 GM is now guided down ~300 bps y/y (Q3 down ~410 bps).
Another very concerning data point is that Lululemon’s management team mentioned that they are opening 14 new physical locations. Based on the work that I’ve been doing and industry professionals I’ve spoken to, it is clear that like LVMH there are too many stores which seem to have poor (and declining) revenue per square meter. The facts are that clients do not go into the physical locations for events anymore as indicated by the fact that long-term clients are spending less. Companies like Alo are smoking Lululemon on the “cool factor” using influencer events globally and with in-store experience that Lululemon simply cannot match. In fact, in a survey that I ran with 400+ respondents 62% of those surveyed stated that they believed Lululemon was becoming a stale brand; with 89% of respondents in the 18-22 year old age range saying it’s no longer “cool”.
Following the earnings call Lululemon CEO Calvin McDonald went on CNBC to discuss pricing adjustments, partnerships and expectations for turnaround. It didn’t go very well…
It is still my opinion