Athleisure Bubble? Lululemon Could Face Trouble Heading Into Q3

Lululemon Athletica inc. LULU has been crushed ever since the company released its second-quarter results in September, with shares down over 25 percent.

The athletic apparel favorite experienced a good run up in the beginning of the year, banking on the “athleisure trend,” which hit a peak in 2015. The basis of this trend was that denim as a style was out on lagging sales, and athletic wear was in. Women were opting for yoga pants instead of denim, and Lululemon rode this trend to new heights. The trend may have now reversed, however, with analysts talking about the resurgence of denim, an area where the company has no presence.

Lululemon Athletica's third-quarter earnings are scheduled for Wednesday. The company will be facing tough comparisons, with Wall Street consensus estimates increasing 23 percent year-over-year to 43 cents per share, up from 35 cents in 2015.

Athleisure Bubble?

Outspoken Lululemon founder Chip Wilson blasted the company’s management for its “dismal performance” earlier in the year. While some took this as bitterness for being ousted from his own company, Wilson may be on to something. He spoke about an upcoming “athleisure bubble” back in July.

Both Canaccord and Credit Suisse have downgraded Lululemon in the past month.

“While we fully expect women to still wear yoga pants, we believe the pace of the purchase will moderate,” said Canaccord analyst Camilo Lyon.

Lyon also raised some excess inventory concerns. These concerns could lead to mark downs over the holidays, which would be a “disconcerting” trend, said Lyon.

Despite the bearish sentiment heading into earnings on Wednesday, at last check, shares of Lululemon were up 3.2 percent on the day at $57.08.