Lululemon Stock Eyes Worst Day Since 2020 After Earnings

Lululemon (LULU) shares plummeted nearly 20% to $265.71 after the company's fiscal second-quarter and full-year guidance fell short of expectations, citing tariff pressures. At least 12 brokerages downgraded their price targets, with BMO Capital Markets reducing its target to $250 from $302. Options activity is surging, with a skew towards bearish sentiment as indicated by a put/call open interest ratio in the 97th percentile.

Analysis

Lululemon Athletica Inc. (LULU) experienced a significant stock price decline, falling 19.7% to $265.71, marking its worst daily performance since March 2020, after the company's fiscal second-quarter and full-year guidance failed to meet market expectations, with management attributing the shortfall to tariff pressures. This negative outlook prompted at least twelve brokerage firms to reduce their price targets on LULU, exemplified by BMO's cut from $302 to $250. The stock gapped to its lowest level since April, breaching key technical support at the $310 mark and falling below its 20-day moving average; year-to-date in 2025, LULU shares have declined by 30%. Current market dynamics indicate that short sellers are influential, with 5.94 million shares sold short, representing 5.4% of the available float and nearly three days of average trading volume to cover, despite an 8% decrease in short interest over the last two reporting periods. Options market activity surged to 24 times its typical volume, with 46,000 calls and 26,000 puts traded; notable activity was observed in the weekly 6/6 260-strike puts, where new positions were being initiated for contracts expiring at the day's close. The Schaeffer's put/call open interest ratio (SOIR) of 1.31, positioned in the 97th percentile of its annual range, underscores a heightened pessimistic sentiment among short-term options traders. Conversely, Lululemon's Schaeffer's Volatility Scorecard (SVS) of 96 suggests the stock has a historical tendency to realize volatility exceeding that priced by options traders.

Key Decisions for Investors

• Given the significant stock decline, negative guidance attributed to tariffs, and widespread analyst downgrades, investors should exercise caution with existing or new long positions in LULU.
• Monitor upcoming earnings reports, management commentary on tariff impacts, and consumer demand trends for any signs of fundamental improvement or further deterioration before adjusting positions.
• Traders should note the elevated options volume, bearish sentiment indicated by the SOIR, and LULU's high SVS, suggesting that while downside risks are prominent, the stock may also experience sharp movements, potentially offering opportunities for volatility-focused strategies or hedging.