Jim Cramer Says Lululemon (LULU) is in “No Man’s Land” After Another Brutal Quarter

Jim Cramer says lululemon athletica inc. (NASDAQ: LULU ) has gone from a premier growth stock to a company facing a serious deterioration in demand, competition, and execution. After its latest results, Cramer said investors should resist buying the stock simply because its valuation has fallen sharply. During the September 10 episode of Mad Money, he said:

In less than 3 years, LULU's gone from one of the greatest growth stories ever told to a thoroughly broken stock and maybe, maybe, just maybe, a broken company.

The company's second-quarter results support the concern. Revenue fell 4% year over year to $2.4 billion, while comparable sales declined 9%. Americas comparable sales fell 12%, and international comparable sales declined 3%. The company also cut its full-year revenue forecast to $10.35 billion-$10.50 billion and diluted EPS outlook to $9.48-$9.73.

Cramer said that lululemon athletica inc.'s (NASDAQ:LULU) difficulties are no longer limited to a temporary slowdown. He pointed to a much more crowded athleisure market, saying that "10 years ago there was Lululemon and not much else," while the company now faces Alo Yoga, Vuori, Athleta, and Fabletics. He added:

It's very hard to sell apparel at premium price when demand is waning, and your competitors are out for blood, and there is excess inventory flying all over the place.

That pressure is significant because the company is simultaneously trying to restore growth in its largest market and protect premium pricing. Cramer also sees execution and leadership problems adding to the pressure. Heidi O'Neill, a Nike veteran, became CEO on September 8 after an extended transition.

lululemon athletica inc. (NASDAQ:LULU) reported diluted EPS of $2.92, but $0.86 of that came from tariff refunds and related interest. The company received $134.5 million in tariff refunds, while gross margin benefited by 560 basis points from the refunds. Cramer commented:

Buying Lululemon because it's cheap has been a sucker's game all the way down because they keep cutting numbers.