LULU 11.21.25

Well, it's going to be tough. The holiday is probably going to be bad, and we'll probably see Calvin McDonald get fired in the next six to 12 months. There's potential for Chip to come in with some activist push, given his wife bought a bunch of stock. It's unclear why his wife needs to buy and not him, but Chip has plenty of writing on his margin loans, and how those are a mess because Lululemon keeps going into the drain. If Calvin gets fired and Chip makes a push, the stock's definitely going to pop quite a bit on that. But it's also contingent on the holiday being bad. You may buy the dip if the holiday's quite bad for the in-theory turnaround on pure product.

I'm curious what you're looking for, but for me, they've been pitching the new product as different and better. That should be coming in the spring, sometime in 2026. Some very hot products may go viral on TikTok, or a new category will be interesting. I’m skeptical again that they can innovate their way out of this, given that most of their innovations have been duds, and it was really just a belt bag that saved them for a couple of years before the blow-up. I'm curious what you're looking for because nothing really comes to mind for me.

Yeah, they lost Stubbington to Veilance, at least on the men's side. I'm not sure where everyone else went, but Arc'teryx is a layup to steal people, given they're both Vancouver-based.

Yeah, we built athleisure with local influencers and yoga, but they didn't pivot their marketing and growth to the influencer era, whereas Alo, Vuori, and other tiny brands are deeply tied to influencers. To your point, the barriers to entry are low. Set Active has a place in the West Village, and they have a ton of influencers. Amazon Basics has a bunch of influencers. All these tiny athleisure brands can get a few hundred thousand followers, and being Lululemon is hard when you have all these guys nibbling at you. It's reminiscent of Starbucks trying to deal with all the coffee competition.

I don't know if you or anyone has done specific work on the product quality in terms of what exactly got worse, but regardless, people talk about it. If enough people talk about it, whether it's real or not, it's perceived as real, and that's a problem.

If they fix the product quality, will you come back? Or as a consumer, what would be the driver to get you to switch brands, or what has driven you to switch brands?

I guess the pushback on that part would be the China business. They've clearly shown they don't have a handle on it. As they lifted guidance earlier this year on the China business, it demonstrated they don't know what's going on. The checks on the ground pointed to heavy discounting, and managers and employees were incentivized solely by sales volume rather than profitability.

I saw plenty of pictures Evercore published. They showed heavy discounting on the ground in China. The growth there is low-quality, with more competition from Maiia Activewear and Xexymix, and Chinese and Korean competition is growing in the space. Alo is also opening a bunch of stores in China, so there's a strong competition-driven pressure there. China isn’t really a layup. I don't think everyone talks about Europe for Lululemon, but they haven't accomplished much there. The growth has never been that impressive, and athleisure is simply not a category. If you walk around Paris, good luck finding people in leggings. Brands like Sézane are the ones growing like a weed there, not athleisure. Overall, I don't really see them getting bailed out by international.