Does the future look sweet or sour for Lululemon stock?

When I originally sat down to write about Lululemon (LULU 1.94%)I intended to write in contrast to the negativity surrounding his latest earnings results. On second look, I change my tune. Lululemon is slowing, and forecasts point to a continuation of that trend.

Along with poor results and guidance from other companies such as Dick’s Sporting Goods and NIKEI think it might be time to finally be a little more cautious about a sports brand that charges pretty high prices for its products.

Results and forecast

To be fair, Lululemon’s still delivered some good numbers in its most recent quarter. The company posted earnings per share growth of 17.5% year-over-year, bringing in $3.15 per diluted share. It is the slower overall outlook that is causing concern, with less impetus for share price appreciation.

Looking ahead, 2024 net revenues are now anticipated to be in the range of $10.38 billion to $10.48 billion. Coming out on the liberal side of that range, it would represent an 8.9% increase from last year’s $9.62 billion and would be the company’s slowest top-line growth in five years.

Diluted earnings per share are expected to be in the range of $13.95 to $14.95. Again, on the liberal end of that guidance, it would give Lululemon annual earnings growth of 22.5%. This pales in comparison to last year’s 82% increase.

Don’t get me wrong. I’m not saying 22.5% is bad. It’s just not as exciting as what we’ve seen, and slower top-line expectations make us wonder if Lululemon can regain its previous earnings growth.

Leggings and competition

One of the disappointments Lululemon is facing right now is the failed launch of leggings. Its “Breezethrough” leggings were pulled this summer after consumers were unhappy with the size and fit. This coincides with one of the problems for Lululemon that has been cited by various analysts: a slower launch of new ideas and products. When you consider that the company lost its chief product officer, Sun Choe, earlier in the year, it makes sense.

If the company can’t create new innovations that drive consumers to new products, it stands to reason that things could slow down a bit. Especially in a more timid consumer environment.

Let’s face it. This is a crowded space. Nike, sneakersand even disturbed Under Armour they are all competitors to varying degrees; and their results were not the most inspiring either. Nike, for example, warned of falling sales in the current quarter. Under Armor said sales were “declining across its business.”

Lululemon competes against these names, not to mention rivals like Puma, Vuori, Alo Yoga, Columbia Sportswearof Prana, Gapof Athleta and Fabletics. No matter how you swing it, it’s a crowded space where high-priced items may not get the love they used to.

Retail outcomes and implications

Looking ahead, I anticipate stagnation for stocks. They’re down 50% year-to-date, and there’s not much here to indicate we’ll see a big catalyst change that narrative. Lululemon needs to increase top-line growth, and the forecast doesn’t indicate it. Combine that with the uncertainty facing consumers heading into fall, and I’m not sure this is the right time for Lululemon.

At the end of the day, this is still a good company. We are just entering a period of uncertainty and less exciting growth prospects. Several companies expressed their views on a leaner and/or more fiscally conservative consumer. This does not necessarily bode well for a business that sells expensive sports products.