Research

Looking Forward To The Sunset - 9/25/25

Few executives have the complete skillset to meet the changing needs of a corporate at various stages of its lifecycle. In this regard Sun Choe (former Chief Product Officer) appears highly skilled at scaling a brand but less adept at the perpetual product engine required by technical, innovative athletic companies. The reason we bring her up is despite leaving the company in May 2024, she still is largely responsible for most the product that you see in the store today. To Calvin McDonald’s (CEO) credit, he used her departure to immediately change a corporate structure for product that clearly wasn’t working. Many investors only recently seem to notice all the ample bad product decisions from the later stages of Sun’s tenure. But there are many signs that Lululemon was aware it needed a change way back then. Ever since that time, the company has tried its hardest to tread water with the product decisions it was stuck with while waiting for the clock to tick down on lead times for product under the new organizational structure. Amazingly, both investor and sell-side sentiment has only gotten worse the closer we get to that inflection point in Spring 2026.

We have taken a deep look into the later stages of Sun’s career at Lululemon as well as the new corporate structure that the company has operated under for the last year or so. Further we talk about the current denim trend in the US and both its impact on Lululemon but also how it is not entirely unrelated from their lack of innovation. Lastly, we know investors will not step into this name ahead of the inflection unless they feel it is significantly derisked, so dug into recent guidance and the concept of a “kitchen sink” while also illustrating the potential timeline in the stock and related upside/downside scenarios.

We believe the reasonable range of EPS outcomes this year is $12.75 to $13.40 but that is significantly less important than the other topics in this note. Any revenue inflection in the Americas is likely to drive the valuation multiple right back into the 20 range as bears will have lost many of their arguments. One reason some people might get involved early is they are likely looking at the list of sell-side recommendations and salivating over the potential upgrade cycle to come.