Lululemon shares moved higher after the apparel maker topped earnings expectations and announced a CEO transition, reviving debate over whether the stock can recover after a prolonged slump.
BNN Bloomberg spoke with David Swartz, equity analyst at Morningstar Research Services, about the implications of the leadership change, slowing North American growth and the company’s longer-term turnaround potential.
Key Takeaways
- Lululemon’s earnings beat helped lift the stock, but the business is still working through a multiyear slowdown.
- North American growth has matured, making international markets critical to future expansion.
- China remains a major opportunity, with strong sales growth and a relatively underpenetrated store base.
- Margin pressure and inventory clearance are likely to weigh on near-term results, particularly into 2026.
- A full turnaround is expected to take several years, with product refreshes and execution seen as key drivers.
Read the full transcript below:
ANDREW: Let’s get more from an analyst perspective. We’re joined by David Swartz of Morningstar Research Services. David, thanks very much for joining us. What was your reaction when you heard the CEO was parting ways with Lululemon? Were you surprised?
DAVID: Yes, I was surprised because Calvin McDonald has been in place for more than seven years, and there was no real indication that he was leaving. However, Lululemon has had a couple of tough years, and that often leads to a CEO change, which is what we’re seeing now. I do think it’s unfortunate that he’s leaving in this way, especially with no clear succession plan in place. But sometimes a company needs a change, and Lululemon is in that place right now.
ANDREW: Do you think there’s a prospect for a turnaround in this stock? It’s up today, but if we look at a one-year chart, performance over the past 12 months has still been dismal.
DAVID: Yes, I do. My fair value estimate before yesterday was $295, so I’ve thought the stock was undervalued at recent prices. There was a time when I thought it was very overvalued, when it was at its all-time high. But I do think the decline has been overdone. Despite its problems, Lululemon still has great margins and strong growth compared with most other apparel retailers.
Most companies would love to have Lululemon’s results, but they look poor by Lululemon’s very high historical standards. It’s still a very strong company with a strong brand, high margins and solid international growth. Growth in North America has slowed considerably, and that’s been the main issue. That was somewhat predictable, because Lululemon is a much bigger company than it used to be, and there are fewer opportunities for new stores and expansion in the U.S. and Canada.
ANDREW: It really is huge. You’ve been forecasting revenue of more than US$10 billion this year.
DAVID: Yes, this is a much bigger company than it used to be, and growth naturally becomes harder at that size. Almost every metro area in the U.S. and Canada now has multiple Lululemon stores, so there just aren’t as many growth opportunities there.
However, Lululemon still has significant opportunities internationally. It’s opening stores aggressively in China, and sales there were very strong last quarter, up 46 per cent.
ANDREW: Wow.
DAVID: Potentially, Lululemon could be opening stores in China for many years. If you look at competitors like Nike and Adidas, they have thousands of stores in China, most of them franchised. Lululemon is still small by comparison.
There are also opportunities in Europe, where in many Western European countries the company has only a small number of stores. Beyond geography, there are product expansion opportunities. Men’s remains smaller than women’s, even though men spend more on sportswear overall, so that business could grow significantly over time.
Footwear is another opportunity. It remains to be seen how successful it will be, but the athletic market is largely driven by footwear, and Lululemon’s sales there are still very small. There are still many opportunities for Lululemon to become an even larger company.
ANDREW: You think the company could buy back about US$1.1 billion in stock this year.
DAVID: Yes. Lululemon has an extremely strong balance sheet, with no debt and about $1 billion in cash. It generates tremendous cash flow and has plenty of capacity to buy back stock. The company announced yesterday that it increased its authorized buyback by another $1 billion.
At these prices, I think buybacks are accretive, and it makes sense for Lululemon to repurchase shares aggressively. In the past, it may have bought back stock at extreme prices, which was less beneficial for shareholders. Right now, though, I think the company is doing the right thing.
ANDREW: Calvin McDonald is exiting as CEO after a rough patch, but you’ve said he achieved tremendous growth over his tenure.
DAVID: Yes, Lululemon has had its best years ever since he became CEO. That might have happened under a different CEO as well, but he deserves a lot of credit. For many years, the company was very successful under his leadership.
The last couple of years have been more difficult. There were product misses and merchandising issues, with some product becoming stale. There were also issues around sizing and colour, along with turnover in the design team. The company lost its chief designer last year, which was a significant setback.
Even so, overall he’s been a very successful CEO. The company is much larger now than when he arrived, and international expansion is progressing well.
ANDREW: China now accounts for about 18 per cent of total sales, and there still seems to be strong momentum there.
DAVID: Yes. Lululemon could potentially be growing in China for many years. Yoga is popular there, and interest in sportswear is growing rapidly. Marathons in China have become huge, with thousands of participants. Much of this growth has happened in just the past several years.
There’s also less competition than in Europe and North America, giving Lululemon an opportunity to position itself as a premium brand, much as it has in the U.S.
ANDREW: Jefferies analyst Randal Konik, a longtime skeptic, says the CEO change could point to a reset, but that things may get worse before they get better. Could this be a bumpy stock to hold?
DAVID: The fourth quarter is likely to be difficult, and there could be some softness into 2026 as well. In my model, the turnaround really comes in 2027 and 2028, once more new products are on the market and older inventory has been cleared.
Turnarounds in this industry don’t happen overnight. They often take two years or more. But I do think Lululemon can do it. The brand remains popular, and customers will return when the company delivers products they want.
ANDREW: Would it make sense to exit footwear or pull back on men’s?
DAVID: No, I don’t think so. There’s real opportunity there. Other sportswear companies are driven by footwear, and Lululemon only has a small presence today. That could change.
We’ve seen companies like On and Hoka grow very quickly in recent years. If they can do it, there’s no reason Lululemon can’t. It’s a large market with room for many successful players.
ANDREW: David, thank you as always.
DAVID: Thank you.
ANDREW: David Swartz of Morningstar Research Services.
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This BNN Bloomberg summary and transcript of the Dec. 12, 2025 interview with David Swartz are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
