Is the future looking sweet or bleak for Lululemon stock?

When I first sat down to write about this, Lululemon (YOU SHINE) 1.94%)I was going to write in contrast to the negativity surrounding the recent earnings results. After a second look, I change my mind. Lululemon is slowing down, and the outlook suggests that trend will continue.

Combined with negative results and tips from other companies such as Dick’s Sporting Goods AND NikeI think it’s time to finally be more cautious about a sportswear brand that charges quite high prices for its products.

Results and forecasts

To be fair, Lululemon still delivered some good numbers in its latest quarter. The company delivered a 17.5% year-over-year increase in earnings per share, bringing in $3.15 per diluted share. It’s the slower overall outlook that raises concerns, with less of a boost to the stock price.

Looking ahead, net revenue in 2024 is expected to be between $10.38 billion and $10.48 billion. On the liberal side of that range, that would represent an increase of 8.9% from last year’s $9.62 billion and would be the slowest revenue growth in the past five years for the company.

Diluted earnings per share are expected to be between $13.95 and $14.95. Again, on the liberal end of that guidance, that would give Lululemon full-year earnings growth of 22.5%. That pales in comparison to last year’s 82% increase.

Don’t get me wrong. I’m not saying 22.5% is bad. It’s just not as exciting as what we’ve seen, and the slower revenue expectations make us wonder if Lululemon can recapture its previous earnings growth.

Leggings and competitions

One of the disappointments Lululemon is currently facing is a failed leggings launch. The “Breezethrough” leggings were discontinued this summer after consumers were unhappy with the fit and sizing. This aligns with one of Lululemon’s struggles that has been cited by various analysts: slower adoption of new ideas and products. When you consider that the company lost its chief product officer, Sun Choe, earlier this year, it makes sense.

If a company can’t create new innovations to entice consumers with new products, it makes sense that things might slow down a bit. Especially in a more timid consumer environment.

Let’s be honest. It’s a crowded space. Nike, Adidasand even worried Under Armour are competitors to varying degrees; and their results aren’t exactly inspiring, either. Nike, for example, warned of a sales decline in the current quarter. Under Armour said sales were “declining across its business.”

Lululemon competes with these brands, not to mention rivals like Puma, Vuori, Alo Yoga, Columbia Sportswearis Prana, GapAthleta and Fabletics. Whichever way you slice it, it’s a crowded space where expensive items may not be getting the love they once did.

Retail Performance and Implications

Looking ahead, I predict the stock will stagnate. It’s down 50% year to date and there’s little sign that we’ll see a big catalyst to change that narrative. Lululemon needs to ramp up revenue growth and the outlook doesn’t suggest it will. Add to that the uncertainty consumers will face in the fall and I’m not sure this is the right time for Lululemon.

At the end of the day, it’s still a good company. We’re entering a period of uncertainty and less exciting growth prospects. Many companies have pointed to a weaker and/or more fiscally conservative consumer. That doesn’t necessarily bode well for a company selling expensive sports products.