Lululemon’s stock has slid more than 10% since the start of fiscal 2026, underperforming the S&P 500 by roughly 800 basis points. Despite trading at a forward P/E of 25, investors are balking at what many see as full valuation given the company’s near-term headwinds. Short interest in LULU has climbed to 4.2% of float, its highest level in 12 months. While consensus revenue growth of 12% for FY2026 implies a rebound from the 8% decline in the prior year, analysts warn that upside may already be priced in unless the company delivers a marked acceleration in same-store sales.

Lululemon’s Americas segment recorded a 6% year-over-year revenue drop in Q3, driven by soft traffic and elevated promotional activity that compressed gross margins by 180 basis points. In contrast, international sales surged 18%, led by a 25% jump in Greater China and a 15% gain in EMEA markets. Management reiterated that Q4 revenue is expected at the high end of its $2.10–$2.14 billion guidance range, with international growth of at least 20% offsetting flat to mid-single-digit trends in North America.

Just days after launching its ‘Get Low’ legging collection, Lululemon paused online sales following reports that the new fabric blend failed to meet the company’s squat-proof standard. The product has since returned to the site with size-up recommendations and skin-tone liner disclaimers. While the quality hiccup is unlikely to dent overall brand loyalty, it highlights growing pressure on design innovation and supply-chain costs. Management forecasts gross margin contraction of roughly 100 basis points in FY2026 due to higher freight and labor expenses, suggesting operating margins may remain range-bound near 16%.