Should You Buy the Dip on Lululemon Athletica (LULU) Stock After Earnings?

Lululemon Athletica (NASDAQ:LULU) recently reported its Q1 earnings, and the stock immediately cratered nearly 20%. Revenue grew 7% to $2.4 billion, and EPS came in at $2.6. Both of those metrics beat expectations, and share repurchases also totaled $430 million for the quarter.

However, analysts were still disappointed since Q2 guidance showed that gross margin would decline 200 basis points year-over-year, and its operating margin would decline by 380 basis points year-over-year. EPS guidance also came in at $2.85 to $2.9 vs. $3.01 last year.

These tariff fears are mainly what the stock is down today, but has the market gone too far?

Are Lululemon’s Fundamentals Worsening?

In prior cycles, Lululemon regularly guided conservatively, then beat. This time could be the same, though there have never been such severe tariffs before. As a result, the market is taking these guidance metrics quite seriously, and analysts have slashed their price targets.

U.S. discretionary demand is soft, and the company’s own Glow Up and Daydrift launches failed to spark a meaningful traffic rebound.

The slowdown is most pronounced in the Americas, which saw U.S. revenue grow by only 2% in the first quarter and same-store sales decline by 2%.

Should You Buy the Dip on LULU Stock Now?

This decline could take more time to reverse, and you’ll likely see more near-term downside. LULU stock has lagged since late 2021 and could continue doing badly in the coming years as well. That’s mainly because the growth is slowing down sharply, and investors are taking out that growth premium.

Its 3-year revenue growth rate sits at 21.2%, and its 3-year EBITDA growth rate is at 24.7%. Wall Street has historically paid 41 times earnings for that growth.

But the growth going forward is only at around 7% for the top line and the bottom line. Buybacks are great, but it just means the company is maturing, and considering debt has overtaken cash in the most recent quarter, a decline in LULU’s valuation seems warranted. I’d still buy the dip, but this is not as big of a “discount” as it looks.