Picture supply: Britvic (copyright Evan Doherty)
Billionaire investor Warren Buffett got here to my thoughts this week. His method of being fearful when others are grasping and grasping when others are fearful was particularly what I considered, as I added a share again into my Self-Invested Private Pension (SIPP) after promoting it years in the past.
That share was sportswear retailer Lululemon Athletica (NASDAQ: LULU). Traders appeared to be fearful after the corporate issued a revenue warning final week.
The Lululemon share worth fell sharply after that and is now 57% decrease than in the beginning of 2025. To me, that appears prefer it would possibly become a terrific discount over the long run.
Not for the impatient
At face worth, the present valuation appears to be like low cost. The value-to-earnings ratio is simply 11, for a corporation with a loyal fanbase and spectacular pricing energy. Final 12 months, for instance, Lululemon’s internet revenue margin was 17%.
However the potential price-to-earnings ratio is probably going properly above 11, as the corporate’s earnings look set to fall.
The retailer has seen enthusiasm amongst its key North American buyer base fall. Comparable gross sales within the Americas for the second quarter fell 4%. Lululemon additionally introduced an anticipated $240m hit to full-year gross revenue resulting from US tariff and import rule adjustments, even after taking actions like elevating costs and pushing producers for decrease prices.
With the US economic system wanting pretty weak, customers would possibly delay forking out on its pricy core yoga gear. One worry a whole lot of traders appear to have is that issues might worsen at Lululemon earlier than they get higher.
Revenue warnings generally observe each other in pretty speedy succession (UK-based sportswear retailer JD Sports activities has demonstrated that over the previous couple of years).
I see a possible alternative
I settle for that, as I’m a believer in long-term investing. However I made a decision so as to add Lululemon shares to my SIPP due to its long-term enterprise mannequin and short-term administration actions.
Administration’s response to the disappointing second outcomes had candour. The corporate recognises that it has been missing enough newness is a few of its product ranges in North America and plans to repair that.
That sounds easy however may already go a protracted approach to stemming the income decline within the Americas, in my view.
What actually excites me about Lululemon although, isn’t the speedy fixes however the longer-term development story.
Robust worldwide gross sales momentum
Whereas comparable gross sales within the Americas fell within the second quarter in comparison with the prior 12 months interval, internet income for that area really inched up as Lululemon has been opening shops.
In the meantime, worldwide internet income grew by greater than a fifth year-on-year. Whereas People could also be displaying some indicators of fatigue, worldwide customers clearly nonetheless can’t get sufficient of Lululemon.
The corporate has a powerful model, restricted large-scale competitors with a yoga focus, confirmed enterprise mannequin and powerful economics. It stays solidly worthwhile regardless of the revenue warning and is sitting on over $1bn of money and money equivalents.
In coming months and maybe years, Lululemon shares might transfer even decrease. Over the long run although, I’m optimistic the expansion story mixed with present share worth make this a wise purchase for my SIPP.
