Is The 10% Rally In Lululemon Stock Justified?

December 12th, 2025 by Trefis Team
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LULU: Lululemon Athletica logo
LULU
Lululemon Athletica

For the better part of 2025, the narrative surrounding Lululemon stock (NASDAQ: LULU) has been dominated by a single, fearful question: “Is the athleisure boom over?” With competitors like Alo Yoga and Vuori chipping away at market share in American malls, investors had priced Lululemon as a brand in secular decline.

Then came Wednesday night.

Despite reporting a 3% decline in U.S. revenue and announcing the resignation of CEO Calvin McDonald, Lululemon shares rallied 10% in aftermarket trading. On paper, shrinking domestic sales and a leadership vacuum sound like a sell signal. In reality, the market is celebrating a fundamental thesis shift. As an aside, also see a shift in What’s Happening With Planet Labs Stock?

The Q3 earnings report proved that Lululemon has successfully decoupled its fortune from the American consumer. It is no longer a “Mall Brand” dependent on U.S. foot traffic; it is a global export powerhouse where international growth is burying domestic weakness.

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Let’s analyze why Wall Street is buying the dip on a company with negative home-market growth. That being said, if you seek an upside with less volatility than holding an individual stock like LULU, consider the High Quality Portfolio. It has comfortably outperformed its benchmark—a combination of the S&P 500, Russell, and S&P MidCap indexes—and has achieved returns exceeding 105% since its inception. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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Photo by jeviniya on Pixabay 

The Thematic Anchor: The International Lifeboat

The primary driver of the 10% rally is the stark divergence between the company’s two geographic engines.

  • The “Old” Reality: Investors feared that as the U.S. slowed, the entire company would stall.
  • The “New” Reality: While the Americas segment struggled (down 3%), International revenue exploded 35%, led by a massive surge in Mainland China.
  • The Insight: This confirms the “International Arbitrage” thesis. Lululemon is in the early innings of brand adoption in Asia and Europe. The market realized that a 35% growth engine in China is powerful enough to offset a mild contraction in the mature U.S. market, effectively de-risking the growth story.

The Valuation Sanity Test: A “De-Risked” Multiple

Prior to this report, Lululemon traded at a significant discount to its historical average, reflecting fears of an earnings collapse.

  • The Valuation: Trading at roughly 15x Forward Earnings before the print, the stock was priced for a “hard landing.”
  • The EPS Surprise: By delivering EPS of $2.59 (beating the consensus of $2.22), management demonstrated that they can protect profitability even when top-line growth in their biggest market turns negative.
  • The Re-Rating: The 10% jump is a “Relief Rally.” Investors are unwinding their “disaster scenario” bets. The stock is re-rating from a “Declining Retailer” multiple (15x-18x) back toward a “Global Brand” multiple (22x-25x).

The Black Box: Margin Defense vs. CEO Exit

The headline shock was the resignation of CEO Calvin McDonald. Why did the stock rise on this news?

  • The “Clean Slate” Theory: The market likely views the CEO transition as an opportunity to reset the U.S. strategy. With U.S. sales falling, fresh leadership is seen as a potential catalyst for product innovation to counter Alo/Vuori.
  • The Margin Story: Crucially, despite the U.S. sales drop, Gross Margins held up better than feared. The company maintained pricing power internationally, avoiding the “discount death spiral” that plagues failing apparel brands. This financial discipline provided a floor for the stock price, even amidst the C-suite turmoil.

The Competitive Moat: Technical Performance vs. “Vibe”

The bear case is that consumers are shifting to “cooler” brands like Alo. The earnings call highlighted Lululemon’s defensive pivot.

  • The Strategy: While competitors win on “Streetwear Vibe,” Lululemon is doubling down on “Technical Performance” (running, training).
  • The Data: Growth in the “Men’s” category and specific technical product lines outpaced the fashion-focused “Women’s Leggings” segments.
  • The Moat: This suggests Lululemon is retreating to its fortress—performance gear—where it has a proprietary fabric advantage (Luon/Nulu), rather than fighting a losing battle on pure fashion trends.

Our Take

Lululemon has officially entered its “Mature Multinational” phase. The double-digit growth era in the U.S. is over, but the global opportunity is just beginning.

  • Bull Case: The China growth engine continues to run at 30%+, and the new CEO successfully stabilizes the U.S. business to flat/low-single-digit growth. The stock grinds higher as earnings compound.
  • Bear Case: The U.S. decline accelerates from -3% to -10%, overwhelming the international gains. If the brand loses relevance in its home market, it eventually hurts the brand’s cachet globally (“If it’s not cool in NY, it’s not cool in Shanghai”).

The Outlook: The 10% rally is justified by the earnings beat and the strength of the international hedge. However, with a CEO search underway and negative U.S. comps, the stock is likely to remain volatile. It is a “Hold” for the international exposure, but not a “Table Pounding Buy” until U.S. sales stabilize.

See, investing in a single stock without comprehensive analysis can be risky. Consider the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.

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