Before diving into the main thesis, I need to touch on two quick “pre-subjects” that frame how I’m thinking.

• My personal bearish bias on consumers - and why I might be wrong.

• How the market perceives growth and assigns multiples.

My Bias on Consumers

If you’ve followed me for a while, you know I’ve been structurally bearish on Western consumption. Post-Covid inflation stayed higher than expected, and new tariffs in the US aren’t helping. I’ve often talked about the double-speed economy.

• The rich get richer (markets, assets, etc.), so they keep spending.

• The poor and middle class lose buying power with inflation.

Even if that idea holds, I made a key mistake that comes straight from Economics 101 - or just basic arithmetic honestly.

The rich get richer faster than the poor get poorer.

Money makes money. The more you have, the more you make, at least until the markets break. And Trump has made it its mission not to let markets break.

While low-income households lose buying power, the speed at which rich households gain wealth is simply faster. Net-net, total spending trends up, and premium brands keep doing “fine enough”, or even really well if you look at On Running.

Yes, these benefits go to people who already have money. But the market doesn’t care about fairness; it only cares about spending, wherever it comes from.

Plus, the U.S. government has propositions for 2026: a potential $2,000 stimulus for lower-income households - which is known to spend every extra dollar, lower taxes, potential reduction of tariffs and lower interest rates which would relieve some debt payment pressure on households.

A great combo to boost consumption, even if only one measure were applied.

The Market’s Perception of Growth

From the market’s point of view, growth is just a number, and the market only rewards the number. A company growing 15% will always get lower multiples than with a 80% growth - within the same sector. Absolute dollar amounts don’t matter.

Growth is relative. It doesn’t matter where you start or where you’re going, the only thing that matters is how fast. Growth rate defines multiples. So even if your actual growth is lower than 5Y before or if you are generating less revenues than 2Y before, as long as there is a potential for growth acceleration, the market will reward it.

That’s why sportswear names are interesting today. They got crushed when growth slowed this year but now comps are easier, multiples are lower, and even a small improvement would look like acceleration.

And acceleration is what the market rewards most.

This setup is perfect for investors: we’re coming out of a period full of negative news, to the point where anything “not terrible” is actually considered good. Sentiment is in the gutter, comps are easy. Plus everything detailed above.

Pretty positive from an investor point of view.

Lululemon

Lululemon is a wonderful brand that fell from heaven. The sportswear sector is unforgiving; king one day, hunchback the next.

Bottom line, the Western market is slowing due to weaker consumption, while the rest of the world is still healthy.

Since the Western market makes up most of Lulu’s revenues - 60% to 71% including Canada, the picture is gloomy.

Management pointed to several issues: besides global weakness, they admitted to a product mix problem. Consumers want entirely new products, not just new colors or patterns on old ones.

The primary cause is that we relied too heavily on some of our core franchises across lounge and social for too long. We did not have the appropriate balance between existing and new styles across our casual offerings and the guests stopped responding as they had in the past.

That said, management confirmed consumers still respond well in certain categories. Most are just picky, unwilling to pay premium prices for the same model they bought three years ago.

We know that we have a very loyal guest who continues to trust and prioritize the brand for their high-performance apparel needs. And when we deliver new innovation across the assortment, they respond and are ready to purchase.

The takeaway from last quarter is that clients are still here, spending is here, but management & product teams aren’t matching demand. That’s where On Running shines - fresh and new, while Lulu, already a leader, feels stale.

Management is now working on true newness. Not just colors and patterns, but new products entirely.

We have closely assessed the drivers of our underperformance and are continuing to take the necessary actions to strengthen our merchandise mix and accelerate our business.

As a result of their work, we intend to increase new styles as a percentage of our overall assortment from the current 23% to approximately 35% next spring.

So we’re talking about a great company with issues. Not fatal, but persistent. And we know management is aware of them and working on fixing them. As they’ve already said that late 2024, the market has been unforgiving and has sold the stock harder than any other in the sector.

This comes with slower growth for the reasons explained above, as Lulu is growing at a much slower rates than it used to. Although for comparison, Nike’s revenues are still declining, yet it trades at 2x sales and 33x earnings.

Not sure how that makes sense; I’d assume the market rewards the eternal branch with a premium, but that premium seems too massive to me. Or on the contrary, Lululemon has been beaten down beyond reasonable - which is my take.

Lulu’s growth today comes entirely from international markets. But comps are about to get easier - Q3-24 was already weak, and we’ve had positive data about global Q4 consumption, at least on the cyber week.

The key question: what about the U.S.? Did management move fast enough with new models? Will the market respond positively to it?

It wouldn’t take much for Lulu to stabilize global growth, with international revenues offsetting flat U.S. sales. At current multiples, even stabilization could boost optimism but new product lines would be the real catalysts. The sooner the better.

The Plan.

Straightforward: I’m not buying Lululemon today. The opportunity is forming, but it’s not here yet. We need confirmation that management can reignite Western demand. That could happen this week, next quarter, later, or never.

But if they do, the opportunity will be there. Lulu won’t shoot 100% in a day like some AI names post-earnings. Patterns will form, retests will happen, it’ll take time.

The chart already looks clean: double bottom, breakout, retest. If fundamentals were stabilizing, it would be a buy. But today, risk is too high. If Thursday’s earnings show more weakness in the West, the market could punish the stock further or just let it drift. Neither helps us.

If it comes with good new, yes, it could be the start of a new uptrend. But without any way of knowing what will happen, this is more gambling than investing.

I wanted to present the name because Thursday’s earnings might give the data we’re waiting for. But we’re not there yet.

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Disclaimer: I am not a licensed financial advisor, analyst, or broker. This content reflects my personal opinions and investment decisions for informational and educational purposes only. I hold positions in securities discussed and may buy or sell without notice. Nothing here constitutes a recommendation to buy, sell, or hold any security. Past performance does not guarantee future results.

Always conduct your own research and consult a qualified professional before making investment decisions. I accept no responsibility for any financial losses.