I Predicted That Lululemon Stock Was In Trouble Ahead of Earnings. What's Next After Its 17% Drop?

In August, a report was released stating that Lululemon's stock appeared to be a value trap, with warnings from Dick's Sporting Goods likely to have a negative impact. The company's fiscal Q2 earnings report on September 4 confirmed these concerns, as the athleisure brand reported disappointing results and reduced its full-year outlook.

Revenue fell 7% to 5% to between $10.35 billion and $10.5 billion, while adjusted EPS decreased to between $9.48 and $9.73. Q2 revenue was 4% below the previous year, and adjusted EPS was below consensus estimates. Americas revenue declined 8%, and same-store sales dropped 12%, while International revenue grew 4%, but comparable sales fell 6%.

China experienced a revenue decrease of 2% and same-store sales decline of 8%. The company attributed the poor performance to negative brand sentiment, a PR mishap in China, and increased competition. Gross margin decreased by 200 basis points to 60.5%. Looking ahead, the company expects Q3 revenue to decline by 10% to 11% and adjusted EPS to fall to between $0.93 and $0.98.

The stock has lost over half its value this year and nearly three-quarters of its value over the past five years. Despite trading at a low forward price-to-earnings ratio, the stock is likely to continue falling as the athleisure fashion trend shifts.