Can You Count On Lululemon’s Cash?
Lululemon Athletica (LULU) stock offers a free cash flow yield of 12.4%, against 4.5% for the median S&P 500 company. Such a yield usually comes either from a business on sale or from one the market expects to shrink. So can you count on the cash behind Lululemon’s yield?
Lululemon Has Brought In More Than It Spent
So far, yes. Lululemon’s free cash flow was positive in every rolling twelve-month period of the last three years. Free cash flow is the cash left after a company pays its running costs and its spending on stores and systems.
That cash matters to a shareholder even when the company keeps it. An owner holds a slice of that cash, just as they hold a slice of the profit. When the market recognizes cash kept in a company, the price tends to follow, and more so when the cash grows.
Lululemon sells athletic apparel such as leggings through 825 stores and online. Over the last twelve months, the business brought in $2.0 billion of cash from operations. Spending on stores and systems took about a third of that, which left $1.4 billion.
The record is uneven, but it has held up. Free cash flow was $1.7 billion two years ago. It dropped to $1.2 billion a year ago, then recovered to the latest level.
Lululemon keeps 17.8% of its sales as operating profit, close to the 18.6% for the S&P 500, though that includes a one-time $134.5 million tariff refund, worth about 1.2 points of the twelve-month margin. Lululemon has no borrowings; its main fixed obligations are about $2.1 billion of store leases. Lululemon’s stock price, though, fell as the outlook for sales and profit weakened. The shares have lost 46% over the past twelve months.
Why Is Lululemon Stock Priced So Low?
The price appears to reflect that Lululemon’s sales have started to shrink, and management expects more of the same. Revenue in fiscal Q2 2026 fell 4% from a year earlier. In North America, comparable sales fell 12%. Sales of leggings, a core product, fell about 20% in the quarter.
Management said negative commentary in the media and on social channels hurt traffic. Management also said some new products drew a softer response than planned.
Lululemon’s operating margin over the last twelve months was 17.8%, down from 23% a year earlier, so profit has already slipped. Management now expects fiscal 2026 revenue to fall 5% to 7% from fiscal 2025. For fiscal Q3 2026, management expects an operating margin of about 6.5%, against 17% in the same quarter a year earlier.
Management is responding with tighter cost control and fewer new stores. The company now plans about 35 net new stores in fiscal 2026, down from about 40. Lululemon’s third-quarter report will show whether the weaker margin starts to reach the cash.
What Could Lululemon’s Third-Quarter Report Show About Its Cash?
The report will show how much of the sales decline reaches the cash. Management expects third-quarter revenue to fall 10% to 11% from a year earlier. Management has not built any gain from its plans across product, brand and guest experience into that outlook.
Debt looks like the smaller worry. Lululemon has no borrowings, though it carries about $2.1 billion in store lease obligations. Against that, the company ended fiscal Q2 2026 with $1.4 billion in cash and cash equivalents. Lululemon also had nearly $600 million of unused credit under its revolving facility.
Lululemon’s cash has held up so far, and it carries no borrowings. The third-quarter report will show whether free cash flow over the last twelve months stays near $1.4 billion while sales shrink. Cash that holds near that level would make the yield look like a real offer. Cash that falls with sales would suggest the market has read Lululemon correctly.
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