The athletic apparel industry is highly competitive, with big players like Nike, Adidas, and Under Armour offering similar products at competitive prices. This has put significant pressure on Lululemon Athletica, pushing the brand to differentiate and innovate to maintain its market position. Athleta competes at a lower price point, while Vuori has gained popularity on the higher end, further intensifying the competitive landscape in the athleisure market.
Slowing Growth and Forecasts
The competitive pressures have contributed to slowing growth for Lululemon Athletica. Analysts predict that the company will report year-over-year quarterly revenue growth below 10% for the first time since supply chain disruptions affected their business during the pandemic. Despite this, full-year revenue growth forecasts for fiscal 2026 remain around 11%, with net income expected to grow just over 9%.
Lululemon Athletica is currently trading at about 19 times earnings, which is a discount compared to the S & P 500 and the lowest multiple since the ’08-’09 bear market. This has created a sense of pessimism in the market, leading some traders to consider making a bullish bet on the stock. The options market indicates a roughly 9% move when the company reports earnings, making it a speculative but potentially lucrative opportunity for investors.
Risk Management and Investment Strategy
Investors looking to capitalize on a potential turnaround for Lululemon Athletica could consider using a call spread to limit their risk. A call spread involving the Aug. 30 270/300 call costs slightly over $8, or just over 3% of the current stock price. This strategy allows investors to bet on positive earnings results without risking a substantial amount of capital. While catching a falling knife in a downtrend market may be risky, a carefully planned investment strategy could yield positive results if the company reports strong earnings.
It is important to note that investing in stocks and options involves risk, and past performance is not indicative of future results. The views expressed in this article are opinions and do not reflect the views of CNBC, NBC UNIVERSAL, or their affiliates. It is essential to seek advice from a financial advisor before making any investment decisions. While the outlook for Lululemon Athletica may seem challenging, strategic investments and risk management strategies could present opportunities for growth in the evolving athleisure market.