Yoga Pants Are Out, Essentials Are In: Lululemon Downgraded Amid Consumers’ Spending Shift

Yoga pants are losing favor on Wall Street to a much less sexy option — discount stores.

As of Sept. 23, Lululemon’s (LULU) stock had dipped by 47% over the past six months. Its competitor Under Armour (UAA) dropped by 26%, underperforming the S&P 500 Index, which has returned 17% over the same time frame. Meanwhile, shares in retail stores like Walmart that carry sportswear continue to rally to 19%, and it has even outperformed the S&P 500, signaling customers’ more cautious spending habits.

The stock decline signals a broader consumer shift away from premium discretionary goods. Lululemon Athletica Inc, a premium athletic apparel brand known for leggings and sports bras, is entering a challenging era.

The key question – is consumer behavior is permanently shifting – could potentially rebuild the landscape of how the market values these companies.

“Investors have lost confidence, Lululemon is a stronger brand, but its growth has slowed,” said David Swartz, senior equity analyst at Morningstar. “ Under Armour has been down for years, and the apparel industry is very competitive.”

Lululemon reported Q2 earnings of $3.10 per share, above consensus estimates of $2.85. Total revenue was $2.53 billion, just below the Wall Street projection of $2.54 billion. Although Lululemon beat consensus forecasts, their outlook for the coming year is not promising.

“We reduced our rating on Lululemon from buy  to hold due to a weak outlook,” Ameriprise Financial Investment Research Group said in a September research paper. “The lower guidance reflects a $240 million reduction in profit related to the removal of the de minimis exemption, which excludes tariffs on smaller shipments.”

HSBC also indicates Lululemon faces an “uphill battle” in turning around its U.S. business after issuing a grim outlook for fiscal 2025 because of continuing corrective measures, tariffs’ impact, and the end of the de minimis exemption.

“I bought the spike in April and sold it in June,” a retail investor using the screen name RubenTrades said on Reddit, an American proprietary social news aggregation and forum social media platform. “But I’m not buying it here.” 

Compared to Lululemon, Under Armour, another premier American sportswear company that manufactures footwear and apparel, has performed even worse over the past six months.

Back in 2010-2016, Under Armour hit 26 straight quarters of 20% revenue growth. However, by late 2016, the brand struggled to adapt to the “athleisure” trend, and CFO Lawrence Molloy’s departure announcement in 2017 led investors to lose confidence in its market performance, and revenue growth never recovered to earlier levels.

This contrast reflects a shift from discretionary spending on sportswear to essentials.

According to McKinsey & Company’s August research, essential spending is holding steady as discretionary purchases take a backseat. It indicated that consumers plan to prioritize essentials over the next three months, with their discretionary spending intentions declining sharply. This shift implies broader caution in spending as economic pressures continue to shape consumer behavior and further impact the stock market.

“I don’t think the whole athleisure thing is quite as hot as it once was,” a retail investor using the screen name Brinkken said on Reddit. “I’m not convinced discretionary consumer spending is going to be very enthusiastic in the next six months.”

Looking ahead, Lululemon plans to mitigate the impact of tariffs through managing expenses, introducing new styles to rejuvenate core categories, and improving supply chain speed to better respond to changing market trends and customer preferences.

“Both Under Armour and Lululemon are hoping that new products drive sales,” Swartz said. “This could be a catalyst. They would also benefit if the holiday selling season turned out to be stronger than expected.”

Still, whether customers will once again choose premium athleisure wear may shift how high-end apparel companies perform on the market.

“There are real risks and fears driven by tariffs, inflation, and consumer strength concerns in the sector,” said a West Coast investor who would give his name only as Ricky. “I am a believer that fear creates opportunity, but that doesn’t necessarily mean that the entire sector is an opportunity or undervalued.”