No downward dog jokes, please: Yoga tights pioneer Lululemon Athletica is one of the stock market's worst performers. It has fallen 45% year to date and 60% over the past five years, good for ninth and 12th worst, respectively, among S&P 500 companies.
It wasn't always so. The stock made its debut in July 2007 at an offering price of $18 a share, closed its first day of trading at $28, and then rocketed for a decade and a half, topping $500 by the end of 2023. If you invested over that stretch, you made more than 3,500%, the ninth-best showing in the index, nestled between Apple and Amazon.com.
Since then, the stock valuation has crashed from 36 times forward earnings estimates to 10 times, or less than half the price of the broader market. Lulu looks cheap, but it's early to call this the bottom. To see why, we have to look at what went wrong, and to understand that we'd better touch on what went right to begin with.
In 1998, Madonna -- then 39, mother to a toddler, and looking remarkably fit -- went on Oprah and said she had sworn off running and gyms in favor of yoga. Nearly overnight, yoga shed its hippie mysticism vibe from the 1960s and '70s and became a chic, premium fitness trend. The fashion world wasn't prepared, with only baggy sweats or shiny aerobics spandex to offer.
Around then, a California-born, Canada-raised entrepreneur named Chip Wilson had just sold a surf, skate, and snowboard clothing company for $15 million. He parlayed his cash into another cultural trend in need of technical wear, yoga, by setting up a Vancouver studio, where he worked with nylon and Lycra by day and cleared out the space at night for yoga sessions that doubled as design tests.
Sweatpants can ride up during yoga, producing an undesirable visual effect nicknamed among women, let's just say, for a certain large, desert-dwelling mammal. Wilson solved this with a diamond-shaped gusset sewn into the crotch. He replaced straight side seams with curved, flat seams around the hips and buttocks that served to lift and sculpt. A high, wide waistband doubled as shapewear. The fabric was matte, not shiny, and dense enough to cover imperfections and underwear lines.
In other words, Wilson's yoga pants made customers look better, and they were spiffy enough to wear to the store, or even to casual workplaces, not just to the yoga studio. What followed was much bigger than mats and poses. The athleisure movement -- wearing workout clothes just about everywhere -- was born. By the time Lulu went public in 2007, Wilson had stepped aside for new management, and revenue was $275 million and growing by 85%, mostly from word-of-mouth.
Ever hear of the Great Tights Shortage of 2013? When a manufacturing defect caused Lulu's Luon material to turn see-though when stretched, it recalled its leggings. The result was a black market and panic buying. Women who couldn't find $92 leggings in stores went to eBay and paid $200 to $300 for gently used ones. Facebook cartels popped up. Sellers took photos of themselves bending over near bright lights to prove their wares were pre-recall and opaque.
Today, Lulu's revenue is north of $11 billion. Peak profit came during the fiscal year ended January 2025. The cultural peak might have been between 2020 and 2023, when Lulu garments became a Zoom call uniform among millennials, and teenagers posted "Lulu haul" TikTok videos showing off their purchases. More recently, there were social-media discussions about product staleness and management missteps. Last quarter, same-store sales in constant currency fell for the first time since the initial pandemic shutdown in 2020. Management slashed guidance. Shares fell 9%.
Jefferies analyst Randal Konik has been warning about negative trends at Lulu for years. He says the company has strayed too far from leggings into regular clothes -- for example, "ankle-length skirts, like Little House 0n the Prairie." It has splashed prominent logos on clothing, even though young customers prefer a more minimalist look, he says. And colors are all over the place. A disjointed palette in stores turns visitors off, and loud colors carry added fashion risk, says Konik.
Help is on the way, maybe. Lulu's former CEO stepped down in January, and a pair of senior executives are holding things down until Nike lifer Heidi O'Neill takes over. Noncompete restrictions will delay that until September. Meanwhile, athleisure competition is rising.
Founding gusset guru and key shareholder Chip Wilson can chafe current management. He once explained that he named the company Lululemon because Japanese shoppers would find the three Ls difficult to pronounce and regard the brand as exotic. He blamed the see-though leggings episode on big thighs rubbing together. More recently, he has criticized company diversity initiatives and management strategy, and waged proxy battles for board seats.
Management can also trip over its own feet. At the end of May, Lulu hosted a massive yoga festival near the Great Wall in China, with a local A-list actor posing next to a Lulu-logoed traditional drum. The drum turned out to be Japanese. After two weeks and 50 million social-media views on subjects ranging from cultural tone deafness to Japan's invasion during World War II, Lulu apologized. Maybe wait for the new CEO before thinking about buying Lulu stock.
Two last notes: First, Konik at Jefferies points out that marshmallowy sneaker seller On Holding has a similar stock market value to Lulu. By that he means that On, with high fashion risk and unclear ability to expand beyond footwear, is expensive, not that it's time to buy Lulu. Second, Konik says his favorite stock now is Yeti Holdings, which I wrote favorably about here last August, despite the alarming proliferation of hulking metal drinkware over at Dick's Sporting Goods. Konik says Dick's is getting cups under control. Yeti is up 53% since that column, versus 16% for the market.
Write to Jack Hough at jack.hough@barrons.com and subscribe to his Barron's Streetwise podcast.
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(END) Dow Jones Newswires
June 26, 2026 02:00 ET (06:00 GMT)
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