Underweight Unpacked: Why ‘Shrink to Grow’ Is the Next Chapter for LULU

Research evidence excerpt

Underweight Unpacked: Why ‘Shrink to Grow’ Is the Next Chapter for LULU

onsensusBased on consensusdata is providedmethodologyby Refinitiv Estimates

the same conclusion – consensus is underwriting an Americas business that is too e = Morgan Stanley Research estimates

Quarterly EPS ($)

large. More specifically, across three independent analyses, our work supports an

2026e 2026e 2027e 2027e

Americas business in the ~$3-6.5B range, well below the Street's $7B+ expectation Quarter 2025 Prior Current Prior Current

Q1 2.60 - 1.69a - -

for 2026-2028e. Q2 3.10 - 1.77 - -

Q3 2.59 - 2.17 - -

#1 Peer precedent analysis implies a ~$3-5B Americas business. Benchmarking Q4 5.01 - 4.76 - -

LULU against the historical growth trajectories of global sportswear & multi-brand e = Morgan Stanley Research estimates, a = Actual Company reported data

specialty peers supports an outcome of roughly $5B, while single-brand fashion

peers point to ~$3B. Collectively, peer precedent analysis implies an Americas

business ~25-60% smaller than consensus' 2026e estimate. See Exhibit 1 .

#2 A “normalized-growth” framework supports a $6B+ Americas business. If

LULU had compounded Americas revenue closer to its pre-pandemic growth rate

(~low-teens %), rather than benefiting from the extraordinary ~mid-20% pandemic-

era acceleration, today's business would likely be ~$6.5B – still about 10% below

the Street's 2026e estimate. See Exhibit 2 .

#3 Our proprietary scale framework points to a $3-7B Americas business. Last

fall, we developed a proprietary framework examining the characteristics of scaled

Morgan Stanley does and seeks to do business withSoftlines businesses across ten structural criteria (more here & here). Applying that

companies covered in Morgan Stanley Research. As a result,