Lululemon soars after CEO's departure. Why is its stock called "dead money"?

Lululemon shares rose more than 10% in the Dec. 12 premarket after the company released a quarterly report that exceeded analysts' expectations and also announced that Lululemon CEO Calvin McDonald is stepping down. Analysts say the change in leadership may help the company, but growth prospects remain limited. Jefferies experts expect a correction of about 9% from the current price.

Shares of Canadian sportswear maker Lululemon Athletica rose more than 10% in extended trading session on Dec. 12 after reporting stronger-than-analysts-expected results for its fiscal third quarter 2025, Barron's writes.

- Revenue climbed 7% to $2.6 billion, beating forecasts of $2.48 billion;

- Adjusted earnings came in at $2.59 per share, beating the $2.21 expected by FactSet analysts;

- Sales rose to $2.57 billion compared to $2.40 billion from the same period last year;

- The board also decided to increase its share repurchase program by $1 billion.

In addition, the company announced that Lululemon Athletica CEO Calvin McDonald will step down on January 31, 2026, after more than a year of weak results for the company's athletic and casual wear (athleisure) segment. The Board of Directors has not yet selected his permanent successor. Lululemon's CFO Megan Frank and Chief Commercial Officer Andre Maestrina will act as interim CEO in the near future.

"Lululemon has a strong foundation, and as we look to the future, the board [of directors] is focused on finding a leader who can lead the company through a phase of growth and transformation and take it to the next level," said executive chairman Marty Morfitt.

Lululemon Athletica's leadership change comes amid the company's difficulties in recovering demand in its largest market, America, Barron's notes. While the company reported that comparable sales overall were up 1% year-over-year, in line with analysts' expectations, they fell 5% in the US. Also despite encouraging results during the Black Friday period, demand weakened in the following weeks, McDonald noted. That was the reason for the more subdued outlook for the fourth quarter.

The company expects:

- Quarterly revenue in the range of $3.5-3.58 billion, a 3-1% decline from last year;

- The sales forecast is roughly in line with expectations at $3.57 billion;

- However, the EPS outlook is weaker than market expectations at $4.66 to $4.76 versus analysts' forecast of $4.94.

Despite a weak outlook for the fourth quarter of 2025, the company raised its full-year forecast slightly:

- Lululemon now expects revenue in the range of $10.96-11 billion, which represents growth of 4% or 5-6% year-over-year (excluding the 53rd week of 2024), the company said in its report;

- Diluted earnings per share for the year are expected to be $12.92 to $13.02;

-The forecast also takes into account an estimated decline in operating profit of about $210 million due to the new tariffs and the elimination of the de minimis threshold (the ability to import low-value parcels duty-free). Last quarter, the company surprised investors by disclosing that it often utilized this benefit by sending parcels from Canada to customers in the U.S. without paying duties.

Year-end analysts expect Lululemon to post adjusted earnings of $12.85 per share on revenue of $10.96 billion, Barron's points out.

Lululemon's business has been under pressure over the past year, in part because of a product line that no longer inspires shoppers the way it used to, CNBC points out . The company faces stiff competition from new sportswear makers like Vuori and Alo Yoga, as well as changing customer preferences, with many women increasingly opting for jeans instead of yoga pants.

"The company is losing share in the increasingly competitive athleisure market and has been unable to correct share declines in a key category, women's pants, despite many attempts," said Matt Jacob, an analyst at research firm M Science. - This will be a challenge for the new CEO"(quoted in Barron's).

Lululemon itself said in the report that in order to improve its business performance it is already planning to actively develop its international direction and expand its assortment: in addition to sportswear, Lululemon offers shoes, outerwear (jackets, coats) and casual pants suitable for the office.

Slower sales in previous quarters have pressured Lululemon shares significantly this year, with the stock losing more than 50% since the start of 2025. However, the market welcomed the potential changes with a growth of more than 10% after the release of the reports. Against this backdrop, Jefferies analysts upgraded Lululemon from Underperform to Hold and raised their target price on the stock from $120 to $170, Investing.com writes. This means that, according to analysts, the worst news is already priced in, but there is no upside potential yet.

Analysts at Jefferies also warned that the company's difficulties will make achieving earnings in 2026 "extremely challenging." Experts believe Lululemon's stock will "remain within a defined range with a downward bias" next year. Jefferies calls investments in the company on a one-year horizon "dead money."

In general, experts from Wall Street treat Lululemon securities cautiously and do not expect a bright growth, but they do not see any reasons for mass sales. According to MarketWatch, only five analysts advise to buy shares, 27 suggest to hold them, and two - to sell.

This article was AI-translated and verified by a human editor