Why Is Wall Street So Bearish on Lululemon? There's 1 Key Reason.

Key Points

• Two major trends haven't done the athleisurewear company any favors recently.

• One worrying development from this is a significant erosion in top-line growth.

• 10 stocks we like better than Lululemon Athletica Inc. ›

Lululemon Athletica (NASDAQ: LULU) stock has looked very drained and low-energy in recent months. The athletic apparel specialist's share price trades nearly 47% year to date, while the benchmark S&P 500 index is up by almost 10%.

It wasn't so long ago that Lululemon was a star in the always tough and highly competitive specialty clothing industry. A closer look at how it started falling from the sky, and whether it's got a chance at regaining altitude, will show the main reason for its drop.

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Stiff headwinds

Basically, Lululemon has struggled to cope with two trends -- rising competition, and the end of the COVID-19 pandemic-era boom in exercise products, services, and apparel.

Image source: Getty Images.

With the many closures and lock-ins of that age, people were often stuck for things to do. Two activities that could be conducted at home with relative safety were working out or doing yoga, hence the rise in demand for athleisurewear. This coincided with the rise of Lululemon as a brand; the company had clothes and accessories that not only looked good but were highly practical for such pursuits.

Excessive success leads to determined competition, and rivals inevitably piled into the space. At the same time, the company was maturing, a combination that slowed sales growth notably. From a 42% improvement in fiscal 2021, in the three subsequent years, growth withered to 30%, 19%, and finally 10% in 2024.

To its credit, Lululemon has been able to consistently land in positive territory on the bottom line. But investors are always hungry for meaningful revenue growth, and when that slows, they often bail.

One brand among many

To its credit, Lululemon has remained profitable, as it's continued to -- sensibly, in my view -- focus on that combination of product style, durability, and usefulness.

Yet with those determined competitors crowding its space, the company's wares aren't as distinctive as they used to be. Given that, I'd probably be hesitant to buy the stock for its growth potential until the company figures out how to better distinguish itself in the market again.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.