By Sabrina Escobar
Lululemon Athletica's stock has rebounded from its summer lows. Will the company's third-quarter results be enough to keep the rally going?
Analysts polled by FactSet expect the company to post earnings of $2.71 a share after the market close Thursday. Total sales are projected to jump by about 7% to $2.36 billion.
Meanwhile, sales at stores open for more than a year are estimated to rise by 3.2%. That would mark an improvement from the previous quarter's 2% increase, yet is still a far cry from the double-digit growth the company was notching during the pandemic.
The slowdown in sales growth reflects some of the challenges Lululemon has faced this year in driving momentum and consumer interest. Demand for activewear and athleisure has fallen in recent months as shoppers gravitate toward traditional apparel after the pandemic, and Lululemon is seeing higher competition from rising companies such as Alo Yoga and Vuori (both privately owned). Some of the pain has also been self inflicted, stemming from issues with product assortment and production.
Those concerns have dragged Lululemon stock down this year. But the shares have rallied since hitting four-year lows in August. In the past three months, the stock is up 32%, while the S&P 500 has gained 10%. The stock closed 0.5% higher Wednesday at $342.27.
Part of that rally is tied to increased "fast money buying," or quick trades from hedge funds and day traders, and short covering, wrote Piper Sandler analyst Anna Andreeva. About 6% of Lululemon's publicly available shares are currently being sold short by investors, marking the highest short interest level in two years.
"The 'easy money' has been made, and fundamentals need to show upside for the stock to keep working from here," she wrote in a Monday note. Andreeva has a Neutral rating on Lululemon stock with a $260 price target.
Bulls believe the company's results will reflect a modest improvement in fundamentals and sales trends -- which will be just good enough for Lululemon to meet consensus estimates.
John Kernan, an analyst at TD Cowen, says he has confidence that new products and marketing efforts, combined with loyalty and a healthy consumer base, will eventually lead to better sales conversion. He notes that the stock's valuation is cheap compared with its peers, trading at 23 times next year's earnings. Nike trades hands at 26.6 times forward earnings, Adidas at 32.2, and On Holding 56.8.
"If management can reiterate FY guidance and talk to improving Americas sales trends -- valuation has upside post Q3 earnings," Kernan wrote.
Sharon Zackfia, an analyst at William Blair, notes that the fourth quarter could be even better as consumers shop for holiday presents.
"We are seeing an encouraging start to the holiday season with a sustained meaningful improvement in sales trends bolstered by a brighter color assortment (including Cerulean Blue, Garnet, and Pink Tide), which lends credibility to management's assertion that a good part of this year's sales softness was self-inflicted," she wrote.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
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July 28, 2025 17:35 ET (21:35 GMT)
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