Is This 1 More Reason to Buy Lululemon Stock?
- - Is This 1 More Reason to Buy Lululemon Stock?
Daniel Sparks, The Motley FoolJanuary 14, 2026 at 12:36 AM
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Key Points -
Lululemon said this week that it expects fourth-quarter revenue and earnings per share to land at the high end of guidance.
International sales momentum remains a bright spot, even as the U.S. business works through challenges.
After a steep sell-off, expectations for Lululemon stock are low.
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After a tough year for shareholders, Lululemon Athletica (NASDAQ: LULU) just gave investors some good news that helps confirm a solid holiday quarter.
The athleisure stock has fallen about 46% over the past 12 months as investors were spooked by slowing growth and pressure on profitability from tariffs. But management said earlier this week that it now expects its fourth-quarter revenue and earnings per share to fall within the high end of its prior guidance ranges. In other words, the important holiday quarter appears to have gone well.
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Here's a closer look at why this update is good news -- and why it adds to an already compelling value proposition for investors.
A Lululemon logo on the front of a Lululemon store.
Image source: Getty Images.
A solid finish to 2025
So, what specifically did Lululemon's financial guidance call for? Management still expects revenue for the period to land within its prior range of $3.500 billion to $3.585 billion, and earnings per share to be within its previously forecast range of $4.66 to $4.76. The difference is that management now expects results "to be toward the high end" of those ranges.
What growth rates do these ranges imply? In its most recent quarterly update (fiscal third quarter ended Nov. 2), Lululemon guided for fourth-quarter revenue to decline 3% to 1% year over year. But management also noted that last year included a 53rd week, and excluding that extra week, the company's revenue guidance range implied fourth-quarter revenue growth of 2% to 4%.
In short, when adjusted for the extra week in the fiscal fourth quarter of 2024, management now expects to report a top-line sales growth rate for the fourth quarter of fiscal 2025 somewhere between 3% and 4%.
While this would mark a notable deceleration from the 7% growth the company reported in Q3, it's still growth.
Two reasons shares are attractive
With expectations for such unimpressive growth (when adjusted to exclude the extra week in the year-ago quarter) in fiscal Q4, why would investors still be interested in the stock? Two reasons: A strong international business and a cheap valuation.
There's been a split trend for Lululemon geographically recently. Its international business has been strong, while its sales in the Americas have been weak. In Q3, for instance, Lululemon's Americas revenue fell 2% year over year, yet international revenue jumped 33%. And overall fiscal third-quarter comparable sales rose 1%, with Americas comparable sales declining 5% and international comparable sales rising 18%.
That international momentum is important for investors because it means the company won't have to rely as much on its U.S. business in the future. Additionally, it speaks to the global appeal of the Lululemon brand, which bodes well for the company's growth potential.
And it's not like Lululemon has given up on its U.S. business. Management has been explicitly focused on driving improvements in its U.S. business recently. Indeed, Lululemon chief financial officer Meghan Frank reiterated this in the company's Jan. 12 financial update.
"We remain focused on executing our action plan to drive improvement in our U.S. business and look forward to the opportunities in front of us," she said.
In the meantime, the stock has arguably already priced in weakness in the U.S. Lululemon shares are trading at a fairly reasonable, if not cheap, valuation. At its current price, the stock trades at a price-to-earnings ratio of 15 and a forward price-to-earnings ratio of 16.
Of course, some things need to go right in order for Lululemon to grow into this valuation. Its international business, for instance, will need to remain strong. If the business starts to experience a substantial deceleration internationally, investors may begin to question the durability of this important catalyst. Further, Lululemon will soon need to demonstrate that its focused effort to revitalize its U.S. business is starting to yield results. When the company reports its fourth-quarter earnings, therefore, investors should look for commentary from management suggesting that there is evidence of a turnaround in its U.S. operations taking hold.
While Lululemon shares aren't the clear bargain they were late last year after rising sharply in recent weeks, the company's latest update regarding its fourth-quarter expectations helps provide one more reason to keep betting on the stock. However, given the impact of tariffs on its profitability and the fact that its U.S. business hasn't yet returned to growth, investors should treat this as a high-risk stock and keep any position in it small.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.
Source: “AOL Money”
