Lululemon Shareholders Can Partly Blame Nike for LULU Stock’s Latest Bearish Price Surprise

One of the top retail stories of 2026 has to be the total collapse of Lululemon’s (LULU) market cap. At the start of the new year, the leisure apparel brand’s equity was valued at over $24 billion. It’s now less than $12 billion. 

As someone who believes Lululemon remains a Canadian success story, even I’m starting to lose patience with a company and board that seems hell-bent on destroying shareholder value.

In yesterday’s trading, it was one of Barchart’s top 200 bearish price surprises, down nearly 6.0%, with a standard deviation of 1.98. Volatility continues to plague a stock that’s lost 71% of its value over the past 60 months. 

Lululemon shareholders can argue that Nike (NKE) is at least partly to blame for the latest decline. However, if you’ve followed the stock for long, you know there’s plenty of blame to go around.

With no bottom in sight, Lululemon should do one or more of the following to right the ship before it's too late.

Non-Compete Agreements Are Past Their Prime

The very first thing Lululemon’s board should pursue is a court challenge in British Columbia, where the company is headquartered, to new CEO Heidi O’Neill’s non-compete agreement with Nike, which prohibits her from starting her role until September. 

I’m not a lawyer, so perhaps I’m offside here, but LULU should at least try to break the non-compete. It’s an old-school HR tool that Canadian courts don’t look favorably upon. Further, if O'Neill signed the non-compete in Oregon, where Nike is based, the state’s non-compete laws are very employee-friendly. 

These four things that can void a non-compete in Oregon: 1) You earn less than $119,451, 2) The non-compete is longer 12 months, 3) You were made aware of the non-compete as a condition of your employment at least two weeks before your first day, and 4) Your employer gives you a copy of the non-compete agreement and various terms with 30 days of your termination date. 

I’m going to assume that all four of these conditions apply in O’Neill’s case. However, as far as I’m aware, Nike would still have to enforce the non-compete in B.C. 

O’Neill’s executive position and knowledge of Nike's trade secrets would support Nike asking a B.C. court to uphold the non-compete. However, just because Nike could take this drastic step doesn't mean it’s a slam-dunk under B.C. law.   

At the very least, the board and Lululemon’s lawyers should indicate in a very public forum that they are willing to litigate the matter so O’Neill can start before September. It’s inexplicable to me why they wouldn’t do so. 

Maybe I’m missing something, but it’s a damning condemnation of the board if they hired O’Neill knowing she couldn’t start until September, and further, did nothing to challenge that situation.

Repurchase Shares By the Boatload

The biggest problem with this strategy is that Lululemon already repurchases a large amount of stock. 

In the past four quarters through May 3, it’s bought back $1.12 billion. In the past five fiscal years (January year-end), it has repurchased $4.81 billion of its stock. It has a little over $1 billion left on its existing share repurchase plan.  

In the 12 months ended May 3, Lululemon’s free cash flow was $1.28 billion. Based on S&P Global Market Intelligence’s analyst estimate for cash flow per share in the current fiscal year of $14.70, 113.6 million shares outstanding, and approximately $650 million in capital expenditures this year, its free cash flow should be about $1.02 billion. 

In 2024, it paid approximately $154 million for its Mexican franchisee and store locations. It likely won’t use any free cash flow for acquisitions this year. It has no long-term debt with $2.13 billion in short-term and long-term operating lease liabilities. The lease liabilities are unavoidable if you’re a retailer and don’t own your locations. 

With its profits set to drop in 2026, it’s unlikely to implement a quarterly dividend to attract income-focused shareholders—but it should once it gets the business back on track. This leaves share repurchases and reinvesting in the business as the two remaining levers of capital allocation available to it. 

Most definitely, it should drastically increase its research and development expenses in the months and years ahead to reflect the technical nature of its products. The company doesn’t break out R&D costs. Most apparel brands don’t. LULU should make increased R&D spending a part of its public relations campaign to right the ship. 

Finally, given that it has no long-term debt, it should consider issuing debt to do a large accelerated share repurchase. 

According to NYU’s Stern School of Business, the average debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) of apparel firms is 3.47x. Lululemon’s expected to generate $2.31 billion in EBITDA in fiscal 2026. It could conceivably borrow up to $8 billion without breaking the bank. 

Of course, it won’t, but half that amount, along with heavy insider buying by directors, founder Chip Wilson, and Elliott Management, would go a long way toward stopping the bleeding.  

Continue to Lean In to China

The natural thing to do when your biggest market by revenue is struggling is to throw everything but the kitchen sink at reviving sales. 

Lululemon’s Americas segment accounted for 66% of its $2.47 billion in Q1 2026 revenue, with the U.S. generating a lion’s share (81%). 

“We experienced a solid start to 2026 as our teams executed with speed, agility, and discipline. Our work to drive improvements in North America resulted in some positive signals in the quarter, including a sequential improvement in full-price sales,” stated interim Co-CEO Meghan Frank in its Q1 2026 press release in early June.  

Its Americas revenue shrank by 4% in the first quarter, and 6% lower on a same-store sales basis, due to reduced store traffic, lower conversion rates, and a decrease in the average transaction. 

In Mainland China, revenues increased by 30% in the first quarter, and 20% on a same-store sales basis. By opening 19 net new stores in the quarter, combined with 20% growth of stores open for 12 months, its revenues accounted for 19.4% of Lululemon’s total sales, up from 15.5% a year earlier. 

Right now, for many different reasons, U.S. shoppers aren’t gobbling up LULU products as they have in the past. Some of it is the company’s fault, which it has acknowledged, and some of it is consumers scaling back discretionary spending amid high gas prices. 

The company can do something about the former, but not the latter, which is why playing to its strengths (Mainland China) makes sense here. 

Further, if you look at its business in Q1, sales were up for women’s and men’s apparel but down slightly in accessories, which includes accessories, footwear and Lululemon Studio.  It will likely slow its push into this last category.

At the same time, all three channels -- company-operated stores, E-commerce, and other channels -- all experienced revenue growth in the quarter. 

GameStop (GME) has a $9.49 billion market cap on $3.73 billion in trailing 12-month revenue. Meanwhile, Lululemon has a market cap of $11.97 billion on $11.20 billion in TTM revenue. 

GameStop trades at 2.54 times revenue compared to 1.07x for Lululemon.  

How ridiculous is this? Very.