Ca$htag$: LULU's Challenge, Shifting Preferences and Lost Appeal

**SPEAKER_1** (0:00)
Well, time now for our Cash Tag segment. For that, let's look at our next guest, and that is Megan Brantley, Vice President of Research at LikeFolio, with a look at the latest sentiment data on Lululemon. Megan, good to see you this afternoon. Lululemon has been a downward dog for a few years now. You guys have fresh sentiment data.
What do the latest consumer numbers look like?

**Megan Brantley** (0:20)
And whenever we look at Lululemon, this is a stock that feels like it's limping into earnings and has been for a few quarters now. And really, this is the story of a brand that, like others we have talked about, similar to Nike, similar to a Target, has seemed to have lost its cool with consumers. And with LULU especially, we see a lot of rising competent competition. And it's interesting that we talk about LULU, used to be the one stealing market share from Nike, and now these newer, cooler brands are stepping up and kind of stealing the same consumer mind share from Lululemon. And when you look at what overall demand looks like for LULU versus Aloe Yoga versus other names, VUORI, Rhone, we see it really underperforming. I will say on a digital perspective, when we look at these visits and demands, we still see consumers who are checking out Lululemon. But the problem is that we're oftentimes, especially last quarter, seeing that some of those visits have failed to convert. So a lot of consumers who are going to checking things out, they simply are reporting that they're not liking what they're seeing. Maybe the design isn't fresh enough.
I will say that LULU is having a bit of a viral moment recently with this very big bag that they've released. And I know that sounds silly, but this is the first time that I've seen LULU have a viral moment in some of our mentions in quite some time. So there's a little bit of a bright spot there. But at large, I think this is a story that Lululemon has recently just failed to resonate with consumers and when consumers are given the option to splurge on some athleisure, they seem to be increasingly heading to Lululemon's competitors.

**SPEAKER_3** (2:03)
Megan, this is a sector that's beat up. This is a stock that's beat up.
The investment community has kind of soured. UBS just came out and said they made lower full year guidance. Goldman Sachs cut their price target. So much bad news is priced into this name. Here's the number that really jumped out at me as an investor, because China is still growing robustly, and the margins there are high, but it's not going perfectly in the US, and they actually had a mishap with some advertising on the wall of China problem. But here's the one that really got me. Their current PE ratio, about 9.5, is 76% below the 10-year historical average of between 40 and 41 So this stock, though the news is not good, and the trends are bad, and you can list them, Dick's Sporting Goods, On Holding, Nike, all the competitors.
Something is amiss in this whole group. But now, it's priced that way, Megan, because this is, it's priced like absolutely nothing is going to happen. Is that what you guys are seeing? Because when that bar is low, and we talk about it being low, any good news can bring a stock higher, Megan.

**Megan Brantley** (3:37)
Yeah, the bar is tremendously low. I think it's down about 42% year to date, but this is a stock that was trading above $500.
Just in December of 2023, so less than three years ago. So it has fallen quite a bit. And Lululemon is still selling a lot of leggings. I think that last quarter, overall sales still grew by 4% to 2.47 billion. So this is still a massive company. This is still a place where people shop. The trends just aren't working in its favor. I think it's interesting because if you listen to the call, there's been a bit of a backlash to the materials that Lululemon is using.
I think it's interesting how the media is framing, how social media is framing Lululemon because when you look at LULU versus competitors, a lot of these materials are very similar, but LULU seems to be wearing the brute of this negative sentiment backlash toward these synthetic fabrics. Consumers who say, maybe I don't want to wear plastic on my body. Maybe I want to wear things like cotton and things like denim. We've seen stocks like Abercrombie and other kind of these more natural fabrics really take hold in the consumer mind. And one thing that's interesting, I was checking out Lululemon's website ahead of this segment, and I noticed that they are hyping natural breathable teas. So it seems like this temporary leadership at least has a grasp on a direction that it needs to follow to get ahead of shifting consumer preferences. And also, you do have a new CEO that will take the helm, I believe, after this earnings event. So there's a bit of a turnaround hope at play here too. So you do have an instance of now the bar is so low that it definitely will take less for LULU to clear it. But for us in our data, I think probably the most alarming thing that we're seeing is a bit of a drop off. So we saw a bit of an uptick through April in terms of momentum and growth from consumers who are visiting Lululemon's website. Then we've seen that growth rate really temper just in the last 30 days drop off by about half. So I think for us, this is just one of those where we're staying away from this earnings.