Luxury retailers like Lululemon are beginning to feel the pain of inflation, which has been squeezing the budgets of American families, leaving little room for luxuries and amenities.

For years, Lululemon has been growing by leaps and bounds, shaking off the challenges that came on its way, including the pandemic recession. And it continued to grow in the third quarter of 2022, with sales up 28%.

Senior management cheered the strong demand for the brand.

"In the third quarter, we continued to deliver strong and balanced results across the business, demonstrating the significant potential for our brand," said CEO Calvin McDonald in a statement accompanying the release of financial results.

McDonald credited the ongoing sales momentum to the "innovative products, deep community relationships, and the hard work and dedication of our talented teams around the world."

Moreover, he expressed his satisfaction with the early holiday season performance and his confidence as the company continues to execute the "Power of Three ×2" growth plan.

"We are proud to have delivered another quarter of strong sales and earnings growth, despite an operating environment that remains dynamic," said chief financial officer Meghan Frank. "These results illustrate the strength and differentiation of our omni operating model and position us well to deliver ongoing value for our stakeholders."

But shareholders weren't terribly happy with Lululemon's financial results. The company's price of shares on Friday declined by 13%.

What's troubling stockholders is that sales for the quarter didn't grow as fast as management expected, leaving $1.7 billion on the shelves, almost twice as much as the third quarter of 2021. And that could be a significant financial burden in the future.

Shoppers weren't as thrilled to pay the premium price for the company's merchandise, as inflation remains elevated at multi-year high and personal debt is soaring. In addition, with many companies announcing hiring freezes and lay-offs, some shoppers might have thought twice before heading for the cash register or clicking the buy button on the company's site.

Then there's the possibility that Lululemon's customers have joined the chorus of shoppers who have been trading down, substituting more expensive brand-name products for less costly no-brand name products.

This new economic reality leaves Lululemon with one option: join other luxury merchants and hold a fire sale to eliminate the excess inventories.

"It's only natural that luxury athletic gear takes a hit," said Ben Waterman, co-founder, and COO at Strabo, a global portfolio tracker. "They will be keen to sell the extra come Christmas time, and the stock may well bounce back in as little as a week."

Stephan Schambach, founder and CEO of Boston-based retail tech company NewStore, thinks Wall Street overreacted to Lululemon's inventory problem.

"Excess inventory can force retailers to offer steep discounts to clear their shelves, so it isn't hard to understand why the market would get spooked by this," Schambach said.