Key Points
Lululemon's sales have been declining, and they may be down as much as 11% in the current quarter.
The company's new CEO, Heidi O’Neill, took over this month, with many problems to fix.
Lululemon Athletica (NASDAQ:LULU)'s stock hasn't been this cheap in years. The apparel company has fallen on hard times. Its growth has dried up, and it's in the midst of a CEO transition as well. There's been plenty of controversy and bad news surrounding the stock to explain its dramatic fall over the years.
There's risk here, there's no doubt about that. But with the stock recently falling below $100 and trading at levels it hasn't been at since 2018, has it become such a bargain that it's too hard to pass up investing in the apparel company?
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Lululemon's new CEO is facing some daunting challenges ahead
Heidi O'Neill took over as Lululemon's new CEO this month and has decades of experience working at another apparel company that's struggling these days -- Nike.
Lululemon recently posted its second-quarter numbers for fiscal 2026, highlighting just how significant its struggles are; the company's revenue declined by 5% (when excluding the impact of foreign currency) for the period ending Aug. 2. And for the current quarter, the company expects revenue to decline between 10% and 11%.
The strength of the brand is being tested these days, and the results aren't promising whatsoever. Like Nike, Lululemon needs to find a way to convince consumers that its products are worth paying a premium for at a time when budgets are stretched, and a flurry of cheaper clothing options are available.
Lululemon has gone from growth to decline in a fairly short time frame, and the challenge for its new CEO will be finding a way to fix that under already difficult macroeconomic conditions.
The stock looks like a lemon
I don't think there's an easy fix to Lululemon's business. The stock is cheap, but when there are serious underlying issues with a company, it becomes a value trap. Investors get drawn in due to its seemingly dirt cheap value, only to end up realizing that it was cheap for a valid reason -- it faces a highly uncertain future.
The fact that both Nike and Lululemon are facing similar challenges suggests broader factors are at play. These stocks aren't struggling because something is necessarily broken with their specific brands. Instead, they might not have the same wide appeal they once did, as rising competition is giving consumers reason to think twice about whether those premium-priced products are worth the money. The value proposition simply may not be there anymore. That's why, as cheap as Lululemon's stock may be, it isn't necessarily worth buying, as it can definitely still go lower.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.