Lululemon stock price has imploded this year as Wall Street remains concerned about its growth trajectory and tariff risks. LULU has collapsed for three consecutive weeks and has moved to its lowest level since September 9. It has dropped by over 41% from the highest point this year and 52% from its 2024 highs. This article explains why LULU shares may plunge further.
Lulumen Athletica faces a double whammy of risks
Lululemon stock price has crashed as the company faces a double whammy of challenges. The first main issue is that the company’s growth has slowed in the past few years due to competition from companies like The Gap, Adidas, On, and Nike.
Its revenue growth has also slowed because demand has weakened moderately after peaking during the pandemic. Also, the elevated inflation and supply chain issues have affected its business trajectory.
The most recent financial results show that the company’s business was faltering. These numbers showed that the net revenue rose by 13% in the fourth quarter to $3.6 billion. Its higher margin Americas division had sales growth of just 7%, while the international segment grew by 38%. Most of this growth came from China.
These numbers brought the annual revenue to $10.6 billion, up by 10% from 2023. Again, the Americas revenue rose by 4%.
The company is also facing the double whammy of Donald Trump’s tariffs that will hit demand and margins. He added a 47% tariff on Vietnam, where the company makes most of its clothes. Other countries like Indonesia, Bangladesh, and Taiwan, were also hit with tariffs.
Lululemon will still continue to make its clothes in these countries because of their low cost of doing business and expertise. Even with tariffs, it will be much cheaper and convenient to use these places.
The company will now be forced to hike prices for products sold in the United States. Substantially higher prices may turn off customers who are dealing with inflationary pressures. As such, the firm will likely be forced to stomach some of these costs soon.
Read more: Lululemon stock is unlikely to find its mojo again in 2025
LULU growth to moderate
Therefore, there is a likelihood that Lululemon’s business will slow down substantially this year. Before the tariffs, Wall Street analysts were expecting its first quarter revenues to come in at $2.36 billion, up by just 6.7% from the same period last year. This is significantly slow growth for a company that used to have regular double-digit growth metrics.
These analysts see the Q2 revenue at $2.57 billion, a 8% annualized increase. Its annual revenue will be a 5.9% annualised increase. As such, while Lululemon has a record of beating estimates, there is a likelihood that it will adjust its estimates because of these tariffs.
Therefore, LULU’s efforts to boost its stock, including the regular share purchases, will be unlikely to work.
Lululemon stock price analysis
The monthly chart paints a clearer picture of what is happening with the LULU share price. It shows that it formed a double-top pattern at $485 in 2021 and in January 2024. A double-top is one of the most bearish patterns in the market.
The stock is now hovering at its neckline at $252, its lowest swing on May 2022. The distance between the double top and the neckline is at $252. Measuring the same distance from the neckline brings the target to $130. Such a move will mean that the stock crashed by about 73% from its all-time high.
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