LULU

LULU is a high-quality franchise trading like a broken one. FY2026 revenue still grew 4.9% to $11.1B and the balance sheet is pristine — $1.81B cash, no short-term borrowings, liabilities/equity of just 0.70x, and a 31.8% ROE that most apparel peers can't touch. Yet the stock fetches 8.9x trailing diluted EPS ($13.26) and 1.2x sales, a valuation that implies structural decline rather than a cyclical earnings dip. The buyback is doing real work: 5.0M shares repurchased for $1.2B cut the count 4.4%, and the board added $1.0B to the authorization in December 2025, so even flat net income translates into rising per-share value.

The bad news is concentrated and largely understood. Per the MD&A, operating margin fell 380bps and EPS dropped 9%, driven explicitly by higher U.S. tariff rates and the removal of the de minimis provision — and management warns these 'will continue to adversely affect gross margin and income from operations in 2026,' since price increases and vendor negotiations won't fully offset them. Net income fell 13% to $1.58B and operating income 11.8%. North America is the soft spot (Americas revenue -1%), but the engine has shifted overseas: international revenue rose 22%, led by China Mainland +29%. That mix shift, plus the three-pillar product-creation action plan, is a credible (if unproven) path back to growth.