The Vancouver-based company has been out of favor with investors for several months now. The stock has lost almost 50% of its value since its record highs last December. The reason: a slowdown in growth due to more selective spending by American households and increased competition. This scenario was confirmed once again last night. The company's second-quarter performance was timid, though broadly in line with expectations. Comparable sales rose by just 2% on a reported basis. Above all, the outlook for the year as a whole is dim. 

Following the release of its press release, the share price was punished by a sharp decline of 6%. A decline that could once again bring it down to historically low valuation multiples, if the past ten years are anything to go by. Lululemon is trading at just 18.5 times earnings this year, compared with 50 times or more in the Covid years.

Nevertheless, the Canadian company is expected to open in the green at 3:30pm. At the traditional "conference call" following a publication, words from CEO Calvin McDonald and CFO Meghan Frank comforted the market.

Management acknowledges mistakes. The "Breakthrough" line of leggings is the prime example. This collection was particularly badly received and criticized because of a back seam deemed unflattering in the V-shape of the tights and a waistband top that digs into the waist. The CEO and CFO believe that business in North America (66% of sales in the U.S. + 13% in Canada) was hampered by late spring model launches. Sizes and colors were also too limited.

Jessica Ramirez, an analyst at Jane Hali & Associates, is not afraid of the group's mistakes, as it has always been able to bounce back: "when there have been missteps, they have been able to correct them fairly quickly". With this in mind, the Group aims to rapidly accelerate the introduction of new models, particularly in shorts, tops and tracksuits, racquet sports and office wear.

Despite negative momentum and a plummeting valuation, Lululemon will therefore have to capitalize strongly on its upcoming launches to perpetuate its brand power in the United States and accelerate its move upmarket internationally, its main growth lever for the future.

The machine is no longer well-oiled (source: MarketScreener)