Verdict: WATCH (confidence 3/5) · price $92.68 on 2026-10-08 · tranches $90 / $70 / $50 · trim above $125 ROIC is ~31–40% and the company has $1.39B net cash, but US comparable sales fell 12% in Q2 and the FY26 earnings guide was cut a second time. The screen's TTM EPS of $12.15 overstates today's earnings: the FY26 guide of $9.48–9.73 includes a $0.86 tariff refund, so underlying is ~$8.75. On that base the price is roughly fair, not deep value. Research, not advice.
R · Radar
- Screen: status BUY, tier B, Big Five 11/15, 59% below the 52-week high, 3 methods agree on the screen's numbers (price/Sticker 0.25). 13D/A filings on 2026-08-03 and 2026-09-03 (founder Chip Wilson, who held about 4.3% [3]). 8-K 2026-10-07: officer changes. Why selected: requested.
- Radar (2026-10-09): WATCH. New CEO overhauls the C-suite [2].
- Gurus: none in the 13F data (13F lag ~4 months). Activist Elliott was reported as pressing the company; its stake and demands are unconfirmed [3].
- Next report ~2026-12-03.
U · Understand
- The business in one sentence: lululemon designs and sells premium athletic apparel and footwear, mostly through its own stores and website.
- Money: Q2 FY26 revenue $2.42B (−4%): Americas −8%, International +4% [1]. 825 company stores. Segment shares of revenue: not found this run. Customer: affluent, fitness-minded women, increasingly men. Hook: brand, fit and community. Rivals: Nike, Alo Yoga, Vuori, Gymshark, On, Athleta.
- Weather: consumer discretionary, tariffs (US IEEPA tariffs were struck down and refunds began; a customer lawsuit alleges price rises during the tariff period, unproven [3]), competition in the US, China demand soft (mainland comps −2%, −8% constant currency) [1].
- Circle of competence: 3/5. Understandable, and I know the product. Still to learn: why newness failed, markdown and inventory health, store productivity, and the tariff cost (a $380M figure appears in one outlet: unconfirmed).
L · Love (moat and management)
- Moat: brand, with a mild loyalty/community effect. Statement: customers pay a premium for the fit and fabric identity. Replication test: a rival can copy products (Alo, Vuori did), so the moat is the brand only. Disappears test: loyal customers would notice. Pricing power: was shown by 2021–23 margins, but Q2 gross margin was 60.5% reported, up 200 bps, but the tariff refund added 560 bps, so underlying was ~54.9%, about 360 bps below last year's ~58.5% (derived), and comps are negative; ROIC fell from 40.8% to 31.4%. A brand isn't automatically a moat (METHOD 3, episode 460).
- Management: buybacks were heavy: 2.7M shares for $330M in Q2 (about $122 each) [1], above today's price; share count 134M (2019) to 119M (2026). Zero debt, $1.39B cash. Cash conversion 1.02 on the screen, but FCF fell from $1.58B to $0.92B in the last fiscal year. Leadership: the founder fight led to a cooperation agreement (26 May 2026) adding two of Wilson's nominees to the board [3]; the previous CEO left (December 2025); co-CEOs ran the company until Heidi O'Neill (ex-Nike) started on 8 September [1]. On 7 October she added a Chief Product Officer (Athleta CEO Maggie Gauger) and a COO (Walmart Canada's Joseph Godsey), while the supply-chain and brand leaders leave; brand, technology and communications heads are open [2]. Proxy pay, insider buying: not found.
- Values: consumer apparel supply chains (labour practices): not researched. The owner decides.
- Would I buy the whole company at this price? Maybe: ~$10.6B less $1.4B cash is ~$9.2B for earnings of ~$1.0B. I would want proof that the US decline stops.
E · Event
- What happened: Q2 (3 Sep): revenue −4%, comps −9%, FY26 guide cut again to revenue $10.35–10.5B (−5% to −7%) and EPS $9.48–9.73 (previously $10.95–11.15); the Q3 guide is revenue −10% to −11% and EPS $0.93–0.98 [1]. Shares fell over 15% that day (one outlet). New CEO in post since 8 Sep, new C-suite 7 Oct [2].
- Event checks (METHOD 7):
- Known: ✔ product misses, US traffic and CEO change.
- Easy to find: ✔.
- Needs at least a year: ✔ product cycles take 12–24 months.
- Resolves within ~3 years: ? A reset is plausible but not shown.
- No new debt needed: ✔ net cash.
- You would own it for life: ? Brand is strong, execution unproven.
- Event or problem? An event in progress that could still turn into a changed story. Comps are still falling and guidance keeps being cut, so I treat it as unresolved (Radar made the same call). Not at a record high.
R · Reduce basis (tranches only, no options)
| Tranche | Price | Basis | Status |
|---|---|---|---|
| 1 | $90 | ≈ Payback on normalised FCF (~$89) and ~10x underlying EPS | Not yet (price $92.68) |
| 2 | $70 | ≈ 8x underlying EPS of $8.75 | Not triggered |
| 3 | $50 | ≈ corrected Sticker ($46) and ~4x underlying EPS ex $12 of net cash per share | Not triggered |
The screen's plan was $187 / $182 / $178 (all triggered) because it used TTM EPS, owner earnings that exceed FCF, and 15% growth. Equal dollar tranches, set in advance; keep dry powder for a further ~50% fall. Stop buying above $90. Trim above $125 (about 14x underlying EPS, near the FCF Ten Cap of ~$131).
S · Story
- Thesis: a brand with 30%+ ROIC and a clean balance sheet has hit a product and execution slump. A new CEO with a product-first reset can bring sales back to flat-to-modest growth, and at ~10x underlying earnings that outcome is a good return.
- Three things that must stay true: (1) net cash is kept (no debt to fund buybacks); (2) gross margin ex one-offs stays above ~54%; (3) US comps stop declining within ~4 quarters.
- Inversion: bear case: the premium-athleisure fad is over, rivals (Alo, Vuori, On) took the customers, tariffs and discounting erode margin, and a new team means more resets. Rebuttal: international is still growing and ROIC is above 30%. Concession: nothing yet shows the US decline is ending, and the buybacks near $122 destroyed value.
- Sell triggers: ROIC below 15% for two years; gross margin below 50%; comps negative for four more quarters after the new product slate; debt issued to fund buybacks; further CEO turnover.
Numbers
| Item | Screen | Corrected / note |
|---|---|---|
| Sticker | $364.50 (EPS $12.15, 15%) | ~$46: underlying EPS ~$8.74 (guide midpoint $9.605 less $0.86 refund) × 1.06^10 × P/E 12 ÷ 1.15^10. MOS ~$23. |
| MOS price | $182.25 | ~$23 |
| Payback | $187.21 | ~$89 on flat FCF of $1.1B (8 × 1.1 + $1.39B net cash ÷ 114M shares); ~$107 on TTM FCF $1.35B |
| Ten Cap | $178.01 | ~$108 on FCF $1.1B; ~$131 on TTM FCF $1.35B; the screen uses owner earnings of $2.03B, which is above FCF |
| Windage growth | 15% | 6%: revenue is falling, 5y sales growth 12% and OCF 3% |
| P/E | 7.6 TTM vs 10-yr median 41.7 | ~10.6x underlying FY26 EPS |
| Owner earnings / net debt / cash conversion | $2.03B / −$1.39B (net cash) / 1.02 | OE overstated vs FCF $1.35B TTM (fiscal-year FCF $0.92B) |
Big Five (screen): ROIC 10y 30.7%, 5y 33.9%; sales growth 10y 16.8%, 5y 12.2%; EPS 10y 19.6%, 5y 12.1%; BVPS 5y 14.7%; OCF 10y 15.3%, 5y 2.9%. Data issues: fiscal-year labels 2018 and 2024 are missing and labels look shifted a year versus company years; treat the table as indicative.
| FY (screen label) | Revenue $B | EPS | OCF $B | FCF $B | ROIC |
|---|---|---|---|---|---|
| 2015 | 2.06 | 1.89 | 0.30 | 0.15 | 25.9% |
| 2016 | 2.34 | 2.21 | 0.39 | 0.24 | 22.2% |
| 2017 | 2.65 | 1.90 | 0.49 | 0.33 | 18.6% |
| 2019 | 3.29 | 3.61 | 0.74 | 0.52 | 33.0% |
| 2020 | 4.40 | 4.50 | 0.80 | 0.57 | 23.0% |
| 2021 | 6.26 | 7.49 | 1.39 | 0.99 | 35.6% |
| 2022 | 8.11 | 6.68 | 0.97 | 0.33 | 27.4% |
| 2023 | 9.62 | 12.20 | 2.30 | 1.64 | 35.9% |
| 2025 | 10.59 | 14.64 | 2.27 | 1.58 | 40.8% |
| 2026 | 11.10 | 13.26 | 1.60 | 0.92 | 31.4% |
No deep dive model exists for LULU.
Sources
- Q2 FY26 results (BNN Bloomberg / press release)
- Retail Dive: O'Neill overhauls the C-suite and 8-K, 2026-09-30
- Chip Wilson proxy fight (Fintool) and 8-K with cooperation agreement
- Tikr: Q2 beat on EBIT, guidance cut
- lululemon 10-K filings on SEC EDGAR (not re-read this run)
Changelog
- 2026-10-09: created. Verdict WATCH: TTM EPS of $12.15 is flattered by a tariff refund and falling sales; underlying ~$8.75. Corrected prices put the stock at roughly fair, not at a margin of safety.