Lululemon ($LULU) – Change of Heart – August 17, 2024
I think Lulu has officially entered “all bad news is priced in” territory. I remain disappointed in the failed leggings launch I wrote about earlier in the season. I’m still frustrated that out-of-stock inventory issues have cost them material growth.
Still, I also maintain confidence in this brand – after surviving multiple macro and fashion cycles – figuring things out this time as well. Alo and Vuori can continue to find great success while Lululemon does too. Lulu will fix inventory issues and its newly reorganized product team should drive more needed innovation to refresh its product assortment.
Anecdotally, I can’t help but notice how packed my local Lululemon stores are with people of all ages or the several pictures of various packed stores I’ve seen across the internet lately. Again, anecdotal… but not irrelevant. Macro won’t suck forever for this brand… comps will soon get much easier… and through all of this, it has maintained 2024 guidance. Analyst expectations for 2025 and beyond have plummeted and its forward earnings multiple is two turns lower than previous decade lows. Sentiment could not be worse, we’re now a few months closer to easier monetary policy and I think that’s exactly when it’s time to lean back in.
I plan to put my 0.6% cash position on Monday morning into Lululemon. That will bring it from 2.4% of holdings to 3.0%. This is also back on the accumulate list when future deposits come.
