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The $240M Hit Nobody Saw 😱
A Sell Off Hiding a Secret 🤫
AI’s Biggest Bet Yet 💰
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THE $240 MILLION HIT NOBODY SAW 😱
$LULU ( ▲ 3.49% ) just dropped earnings, and Wall Street’s acting like they showed up to yoga class in jeans. Stock’s been smacked down 20%+, but if you look past the noise… the fundamentals are still looking stretchy and strong.
Let’s walk through it.
The Numbers That Matter
Revenue: $2.5B this quarter → +7% y/y. Missed Wall Street’s expectations by ~$40M, which isn’t that bad.
Regional Breakdown:
Americas: up just 1% y/y (ouch). Comparable sales actually fell 4%.
International: up a spicy 22% y/y.
China: the MVP → +25% y/y, now makes up 15%+ of total sales.
Stores: added 14 new shops → now rocking 780+ stores globally.
Digital Sales: 39% of total revenue, +9% y/y.
Margins:
Gross margin: 58.5% (down 110bps).
Operating margin: 20.7% (down 210bps).
What does it all mean? Tariffs + markdowns are eating into profits.
EPS: $3.10 → beat estimates by $0.25.
Cash vs. Debt: $1.15B cash, no long-term debt. LULU’s balance sheet is squeaky clean.
Guidance (aka The Mood Killer)
Management came in hot with the downer:
Full-year revenue: $10.85B–$11.0B vs. Wall Street’s $11.18B.
EPS: $12.77–$12.97 vs. Wall Street’s $14.45.
That’s where the panic set in. Tariff drama + U.S. slowdown = Wall Street tantrum.
The Tariff Headache
LULU expects a $240M tariff hit to annual gross profit.
De minimis exemption (the “duty-free under $800” loophole for imports) got yanked → hurting U.S. e-commerce.
Inventory is up almost 20%, meaning discounts and markdowns are coming to clear it.
Lulu aren’t only ones feeling the weight of the tariffs
Potential upside? If the Supreme Court strikes down Trump-era tariffs, $LULU ( ▲ 3.49% ) gets all that margin pain back. Management isn’t banking on it (smart), but the ruling later this year could be a sneaky upside catalyst.
Growth Drivers (aka The Good Stuff)
China: still a rocket ship. No tariff issues, better margins, booming e-commerce. Platforms like Tmall, Douyin (TikTok China), and WeChat are massive sales channels.
Fun fact: live-stream shopping in China is projected to hit $770B by 2030 (7.4% CAGR). LULU’s perfectly positioned to tap that.
Mexico: LULU just took direct control of local retail ops. Expect growth here.
Long-term history: nearly 20% CAGR in sales over the last decade. Even if that slows, it’s still one of the best in consumer apparel.
The China ecommerce wave has huge growth potential
Valuation Check 🧮
Here’s where it gets interesting:
Stock is now trading at <20x earnings. That’s bargain-bin compared to its history (used to be 70x PE at the peak).
Free cash flow: still $1B+ annually, even after tariff hits.
Efficiency/profitability metrics are superior to peers.
Valuation math:
Conservative DCF → fair value at $186/share (modest upside).
Peer comps → 66% upside.
Even a conservative valuation up to $186 leaves me with over a 16.7% upside. But the analysts on Wall Street are more optimistic than that. The average price target across analysts leaves Lulu with a 24.61% upside and a price target of $199.20. I might just round it up to $200….
Risks
U.S. slowdown could linger.
Fashion trends shift fast → LULU can’t afford to fall behind.
Tariff overhang likely keeps near-term volatility high.
If Lulu can juggle the risks, there’s plenty of upside to be had
The Play
This isn’t a “back up the truck” moment… but it’s also not a “run for the hills” situation.
Fundamentals = strong.
Balance sheet = debt-free.
International = booming.
Valuation = attractive.
I think it’s a buy and personally starting with a small position. Short-term pain? Sure. Long-term? The risk/reward looks tilted in LULU’s favor.
TL;DR
Revenues: $2.5B (+7% y/y), China crushing (+25%).
Guidance cut: revenue $10.85–11.0B, EPS $12.77–12.97 → below Wall St.
Tariffs = $240M hit + inventory up 20%.
Balance sheet: $1.15B cash, zero debt.
Stock trading <20x PE vs. historical 70x.
DCF fair value: $186. Peer comps: 66% upside.
Call: Buy, small starter position.
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