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lululemon Q2 Earnings Beat Estimates, Stock Tumbles on Downbeat View
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Key Takeaways
Q2 EPS of $3.10 beat estimates, but sales of $2.5B missed, with both declining y/y.
The gross margin fell 110 bps as tariffs, markdowns and deleverage added significant pressure.
Shares plunged 16.5% after a weak FY25 outlook and guidance cuts tied to rising tariff costs.
lululemon athletica inc. (LULU - Free Report) reported second-quarter fiscal 2025 results, wherein earnings per share (EPS) beat the Zacks Consensus Estimate, while revenues lagged the same. The company’s top and bottom lines declined year over year, driven by softness in the Americas. Additionally, soft margins weighed on the bottom line.
lululemon’s fiscal second-quarter earnings per share (EPS) of $3.10 declined 1.6% compared with $3.15 in the prior-year quarter. However, the bottom line surpassed the Zacks Consensus Estimate of $2.53.
Shares of lululemon tumbled 16.5% in the after-hours trading session yesterday, following a weak fiscal second-quarter fiscal 2025 performance and a downbeat outlook for the third quarter and fiscal 2025. Investor sentiment was further rattled by management’s warning on rising import tariffs, retaliatory measures and the removal of the de minimis exemption, signaling that LULU faces a challenging road ahead. The Zacks Rank #3 (Hold) company has lost 33.1% in the past three months compared with a 5.4% decline for the Textile - Apparel industry.
Image Source: Zacks Investment Research
LULU’s Q2 Earnings Overview
The Vancouver, Canada-based company’s quarterly revenues rose 7% year over year to $2.5 billion and missed the Zacks Consensus Estimate of $2.84 billion. On a constant-dollar basis, net revenues improved 6% year over year in the fiscal second quarter. Net revenues grew 1% in the Americas on both reported and constant-dollar basis, and 22% internationally (up 20% on a constant-dollar basis).
Total comparable sales (comps) rose 1% year over year. Comps in the Americas declined 4% on a reported basis and 3% in constant dollars. Internationally, comps increased 15% and rose 13% on a constant-dollar basis. Our model predicted comps growth of 0.6% for the fiscal second quarter.
Within the Americas segment, revenues increased 1% year over year in Canada on both a reported and constant-currency basis, and were flat in the United States. In the International segment, revenues rose 25% in Mainland China (24% in constant currency) and 19% in the Rest of the World (15% in constant currency). Comps improved 16% in Mainland China and 9% in the Rest of the World in the fiscal second quarter.
In the store channel, the company’s total sales increased 3% on a constant-dollar basis. Digital revenues improved 9% year over year, contributing $1 billion, or 39%, to the total revenues.
lululemon athletica inc. Price, Consensus and EPS Surprise
The gross profit improved 5% year over year to $1.48 billion. The gross margin contracted 110 basis points (bps) to 58.5%, primarily affected by an 80-basis-point (bps) decline in the product margin, led by increased markdowns and tariff impacts. Notably, markdowns increased 60 bps, well above the company’s expectations of 20-40 bps, while fixed cost deleverage added 40 bps of pressure. These headwinds were partly offset by a 10-bps benefit from favorable foreign exchange. We expected the gross margin to contract 200 bps year over year to 57.6% for the fiscal second quarter.
However, management noted that gross margin in the quarter was stronger than its guidance of a 200-210 bps decline, fueled by favorable product mix, lower ocean freight costs, disciplined expense management and smaller-than-expected tariff impacts due to timing. Additionally, a reversal of stock-based compensation accruals contributed further relief.
SG&A expenses of $951.7 million increased 9.1% from the year-ago quarter. SG&A expenses, as a percentage of net revenues, of 37.7% rose 90 bps from 36.8% in the prior-year quarter. The increase in SG&A expense rate was favorable versus the company’s guidance of a 170-190 bps increase. The better-than-expected SG&A rate was driven by the stock-based compensation accrual reversal.
Our model predicted SG&A expenses to rise 12.6% year over year for the fiscal second quarter, with a 190-bps increase in the SG&A expense rate to 38.7%.
The operating income declined 3% year over year to $523.8 million in the fiscal second quarter. The operating margin of 20.7% contracted 210 bps year over year. Our model predicted a 10.9% year-over-year decline in adjusted operating income. We estimated the operating margin to decline 380 bps year over year to 19%.
Snapshot of lululemon’s Store Plans
In second-quarter fiscal 2025, LULU opened 14 net new stores, including 15 store openings and one closure. Additionally, the company completed six optimizations. As of Aug. 3, 2025, it operated 784 stores.
In the third quarter of fiscal 2025, the company expects to open 14 net new company-operated stores and complete 18 store optimizations. For fiscal 2025, lululemon reiterated its guidance of 40-45 net new company-operated stores, anticipating store openings at the higher end of the view. It expects to complete 35 co-located optimizations compared with 40 optimizations mentioned earlier.
LULU expects overall square footage growth in the low-double digits for fiscal 2025. Store openings in fiscal 2025 are expected to include 15 stores in the Americas, with nearly half of this planned for Mexico. The rest of the store openings in fiscal 2025 are expected to occur in the international markets, primarily in China.
LULU’s Other Financial Details
lululemon exited second-quarter fiscal 2025 with cash and cash equivalents of $1.6 billion. The company had $393.2 million of capacity under its committed revolving credit facility and stockholders’ equity of $4.4 billion. Its inventories rose 21% year over year to $1.7 billion, with inventory units improving 13%. The capital expenditure was $178 million in the fiscal second quarter.
In the fiscal third quarter, the company anticipates dollar inventory to increase in the low double-digits and inventory per unit to increase in the low 20s, driven by higher tariffs and adverse currency rates. The company expects inventory growth for the rest of the fiscal year to follow a similar pattern.
In the fiscal second quarter, lululemon repurchased 1.13 million shares at an average price of $247. As of Aug. 3, 2025, LULU had $860 million remaining under its current $1-billion share repurchase authorization.
lululemon’s Targets for Q3 & FY25
LULU lowered its revenue and EPS guidance for fiscal 2025 due to the expectations of increased tariff-related costs and the removal of the de minimis exemption.
For fiscal 2025, LULU anticipates net revenues of $10.85-$11 billion compared with the $11.15-$11.3 billion stated earlier. This indicates 2-4% year-over-year growth versus the previously mentioned growth rate of 5-7%. Excluding the 53rd week in 2024, revenues are expected to rise 4-6% compared with 7-8% growth mentioned earlier.
On a segmental basis, the company’s guidance assumes revenues in the Americas to be flat to down 1%, including a 1-2% decline in the United States and nearly flat revenues in Canada. On the international front, revenues are expected to increase 20-25% in Mainland China and 20% in the Rest of the World.
lululemon expects a 300-bps year-over-year decline in the gross margin compared with the previously mentioned 110-bps decline. The variance from the prior guidance is mainly due to an additional 190 bps of deleverage, led by increased tariffs, including the removal of the de minimis exemption, offset by its cost mitigation efforts. Additionally, the company anticipated markdowns of 50 bps compared with the prior stated 10-20 bps, reflecting higher seasonal clearance.
The company also provided additional details on tariff-related expenses, which now reflect two key components: higher reciprocal rates and the removal of the de minimis exemption. The company’s earlier guidance assumed mitigated impacts of roughly 40 bps for fiscal 2025, based on 10% incremental tariffs across most sourcing countries and 30% on China.
However, with tariff rates trending higher and the de minimis exemption now eliminated, the company projects a 220-bps impact on the gross margin for fiscal 2025 (or nearly $240 million of mitigated impacts). Of this, about 170 bps of impact stemmed directly from the de minimis change. Previously, the company’s Canadian distribution infrastructure allowed it to ship e-commerce orders under $800 to U.S. customers, qualifying for the exemption and generating meaningful duty savings. That advantage has now been removed, significantly pressuring margins.
Additionally, the company noted that in fiscal 2025, it will only realize half a year of mitigation strategies, limiting the offset. By fiscal 2026, while the company will not fully recover the incremental de minimis costs, it expects to benefit from a full year of mitigation measures, leading to an estimated $320-million net impact on the operating margin tied to both higher tariffs and the exemption removal. This outlook underscores the near-term headwinds but also highlights its proactive approach to managing through evolving trade dynamics.
The SG&A expense rate is expected to rise 80-90 bps year over year for fiscal 2025, above the prior mentioned 50 bps. The increase in deleverage is led by softer top-line projections, currency headwinds and ongoing investments in its Power of Three x2 plan despite several enterprise-wide cost savings initiatives in place. Throughout fiscal 2025, the company will continue to allocate resources to support market growth, advance international expansion and strengthen technology capabilities.
LULU expects the fiscal 2025 operating margin to contract 390 bps year over year. The company projects an EPS of $12.77-$12.97, suggesting an increase from the $14.64 reported in fiscal 2024. The revised EPS view marks a decline from $14.95-$14.78 projected earlier. The company anticipates an effective tax rate of 30% for fiscal 2025. lululemon expects a capital expenditure of $700-$720 million for fiscal 2025 compared with $740-$760 mentioned earlier.
For the third quarter of fiscal 2025, management anticipates net revenues of $2.47-$2.5 billion, indicating 3-4% year-over-year growth. The company expects a 410-bps year-over-year decline in the gross margin due to higher tariff rates and the removal of the de minimis exemption, along with fixed cost deleverage and continued investment in its multi-year distribution center project. The tariff and de minimis impacts are expected to be 230 bps. Additionally, the company expects an 80-bps year-over-year increase in markdowns, driven by higher seasonal clearance.
SG&A, as a percentage of sales, is expected to deleverage 150 bps year over year, driven by higher foundational investments, including related depreciation and strategic initiatives to enhance brand awareness and support growth. The operating margin for the fiscal third quarter is expected to decline 560 bps year over year, including a 230-bps impact of tariffs and de minimis.
EPS for the fiscal third quarter is expected to be $2.18-$2.23, whereas it reported EPS of $2.87 in the prior-year quarter. LULU estimates an effective tax rate of 30.5% for the fiscal third quarter.
Solid Picks in LULU’s Broader Industry
We have highlighted three better-ranked stocks from the same industry, namely Ralph Lauren Corporation (RL - Free Report) , Guess?, Inc. (GES - Free Report) and Hanesbrands Inc. (HBI - Free Report) .
Ralph Lauren is a major designer, marketer and distributor of premium lifestyle products in North America, Europe, Asia, and internationally. RL flaunts a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Ralph Lauren’s fiscal 2025 sales and earnings indicates growth of 6% and 19.8%, respectively, from the year-ago period’s reported figures. RL has a trailing four-quarter earnings surprise of 8.5%, on average.
Guess designs, markets, distributes and licenses casual apparel and accessories for men, women and children as per the American lifestyle and European fashion sensibilities. GES sports a Zacks Rank #2 (Buy) at present.
The Zacks Consensus Estimate for Guess’ current fiscal-year sales indicates growth of 7% from the year-ago period’s reported figure. The consensus estimate for GES earnings suggests a year-over-year decline of 18.4%. GES has a trailing four-quarter earnings surprise of 26.7%, on average.
Hanesbrands engages in the design, manufacture, sourcing and sale of apparel essentials for men, women and children in the United States and internationally. HBI currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Hanesbrands’ current fiscal-year sales indicates a decline of 11.3% from the year-ago period’s reported figure. The consensus estimate for HBI earnings suggests a year-over-year surge of 65%. HBI has a trailing four-quarter negative earnings surprise of 56.1%, on average.
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lululemon Q2 Earnings Beat Estimates, Stock Tumbles on Downbeat View
Key Takeaways
lululemon athletica inc. (LULU - Free Report) reported second-quarter fiscal 2025 results, wherein earnings per share (EPS) beat the Zacks Consensus Estimate, while revenues lagged the same. The company’s top and bottom lines declined year over year, driven by softness in the Americas. Additionally, soft margins weighed on the bottom line.
lululemon’s fiscal second-quarter earnings per share (EPS) of $3.10 declined 1.6% compared with $3.15 in the prior-year quarter. However, the bottom line surpassed the Zacks Consensus Estimate of $2.53.
Shares of lululemon tumbled 16.5% in the after-hours trading session yesterday, following a weak fiscal second-quarter fiscal 2025 performance and a downbeat outlook for the third quarter and fiscal 2025. Investor sentiment was further rattled by management’s warning on rising import tariffs, retaliatory measures and the removal of the de minimis exemption, signaling that LULU faces a challenging road ahead. The Zacks Rank #3 (Hold) company has lost 33.1% in the past three months compared with a 5.4% decline for the Textile - Apparel industry.
Image Source: Zacks Investment Research
LULU’s Q2 Earnings Overview
The Vancouver, Canada-based company’s quarterly revenues rose 7% year over year to $2.5 billion and missed the Zacks Consensus Estimate of $2.84 billion. On a constant-dollar basis, net revenues improved 6% year over year in the fiscal second quarter. Net revenues grew 1% in the Americas on both reported and constant-dollar basis, and 22% internationally (up 20% on a constant-dollar basis).
Total comparable sales (comps) rose 1% year over year. Comps in the Americas declined 4% on a reported basis and 3% in constant dollars. Internationally, comps increased 15% and rose 13% on a constant-dollar basis. Our model predicted comps growth of 0.6% for the fiscal second quarter.
Within the Americas segment, revenues increased 1% year over year in Canada on both a reported and constant-currency basis, and were flat in the United States. In the International segment, revenues rose 25% in Mainland China (24% in constant currency) and 19% in the Rest of the World (15% in constant currency). Comps improved 16% in Mainland China and 9% in the Rest of the World in the fiscal second quarter.
In the store channel, the company’s total sales increased 3% on a constant-dollar basis. Digital revenues improved 9% year over year, contributing $1 billion, or 39%, to the total revenues.
lululemon athletica inc. Price, Consensus and EPS Surprise
lululemon athletica inc. price-consensus-eps-surprise-chart | lululemon athletica inc. Quote
The gross profit improved 5% year over year to $1.48 billion. The gross margin contracted 110 basis points (bps) to 58.5%, primarily affected by an 80-basis-point (bps) decline in the product margin, led by increased markdowns and tariff impacts. Notably, markdowns increased 60 bps, well above the company’s expectations of 20-40 bps, while fixed cost deleverage added 40 bps of pressure. These headwinds were partly offset by a 10-bps benefit from favorable foreign exchange. We expected the gross margin to contract 200 bps year over year to 57.6% for the fiscal second quarter.
However, management noted that gross margin in the quarter was stronger than its guidance of a 200-210 bps decline, fueled by favorable product mix, lower ocean freight costs, disciplined expense management and smaller-than-expected tariff impacts due to timing. Additionally, a reversal of stock-based compensation accruals contributed further relief.
SG&A expenses of $951.7 million increased 9.1% from the year-ago quarter. SG&A expenses, as a percentage of net revenues, of 37.7% rose 90 bps from 36.8% in the prior-year quarter. The increase in SG&A expense rate was favorable versus the company’s guidance of a 170-190 bps increase. The better-than-expected SG&A rate was driven by the stock-based compensation accrual reversal.
Our model predicted SG&A expenses to rise 12.6% year over year for the fiscal second quarter, with a 190-bps increase in the SG&A expense rate to 38.7%.
The operating income declined 3% year over year to $523.8 million in the fiscal second quarter. The operating margin of 20.7% contracted 210 bps year over year. Our model predicted a 10.9% year-over-year decline in adjusted operating income. We estimated the operating margin to decline 380 bps year over year to 19%.
Snapshot of lululemon’s Store Plans
In second-quarter fiscal 2025, LULU opened 14 net new stores, including 15 store openings and one closure. Additionally, the company completed six optimizations. As of Aug. 3, 2025, it operated 784 stores.
In the third quarter of fiscal 2025, the company expects to open 14 net new company-operated stores and complete 18 store optimizations. For fiscal 2025, lululemon reiterated its guidance of 40-45 net new company-operated stores, anticipating store openings at the higher end of the view. It expects to complete 35 co-located optimizations compared with 40 optimizations mentioned earlier.
LULU expects overall square footage growth in the low-double digits for fiscal 2025. Store openings in fiscal 2025 are expected to include 15 stores in the Americas, with nearly half of this planned for Mexico. The rest of the store openings in fiscal 2025 are expected to occur in the international markets, primarily in China.
LULU’s Other Financial Details
lululemon exited second-quarter fiscal 2025 with cash and cash equivalents of $1.6 billion. The company had $393.2 million of capacity under its committed revolving credit facility and stockholders’ equity of $4.4 billion. Its inventories rose 21% year over year to $1.7 billion, with inventory units improving 13%. The capital expenditure was $178 million in the fiscal second quarter.
In the fiscal third quarter, the company anticipates dollar inventory to increase in the low double-digits and inventory per unit to increase in the low 20s, driven by higher tariffs and adverse currency rates. The company expects inventory growth for the rest of the fiscal year to follow a similar pattern.
In the fiscal second quarter, lululemon repurchased 1.13 million shares at an average price of $247. As of Aug. 3, 2025, LULU had $860 million remaining under its current $1-billion share repurchase authorization.
lululemon’s Targets for Q3 & FY25
LULU lowered its revenue and EPS guidance for fiscal 2025 due to the expectations of increased tariff-related costs and the removal of the de minimis exemption.
For fiscal 2025, LULU anticipates net revenues of $10.85-$11 billion compared with the $11.15-$11.3 billion stated earlier. This indicates 2-4% year-over-year growth versus the previously mentioned growth rate of 5-7%. Excluding the 53rd week in 2024, revenues are expected to rise 4-6% compared with 7-8% growth mentioned earlier.
On a segmental basis, the company’s guidance assumes revenues in the Americas to be flat to down 1%, including a 1-2% decline in the United States and nearly flat revenues in Canada. On the international front, revenues are expected to increase 20-25% in Mainland China and 20% in the Rest of the World.
lululemon expects a 300-bps year-over-year decline in the gross margin compared with the previously mentioned 110-bps decline. The variance from the prior guidance is mainly due to an additional 190 bps of deleverage, led by increased tariffs, including the removal of the de minimis exemption, offset by its cost mitigation efforts. Additionally, the company anticipated markdowns of 50 bps compared with the prior stated 10-20 bps, reflecting higher seasonal clearance.
The company also provided additional details on tariff-related expenses, which now reflect two key components: higher reciprocal rates and the removal of the de minimis exemption. The company’s earlier guidance assumed mitigated impacts of roughly 40 bps for fiscal 2025, based on 10% incremental tariffs across most sourcing countries and 30% on China.
However, with tariff rates trending higher and the de minimis exemption now eliminated, the company projects a 220-bps impact on the gross margin for fiscal 2025 (or nearly $240 million of mitigated impacts). Of this, about 170 bps of impact stemmed directly from the de minimis change. Previously, the company’s Canadian distribution infrastructure allowed it to ship e-commerce orders under $800 to U.S. customers, qualifying for the exemption and generating meaningful duty savings. That advantage has now been removed, significantly pressuring margins.
Additionally, the company noted that in fiscal 2025, it will only realize half a year of mitigation strategies, limiting the offset. By fiscal 2026, while the company will not fully recover the incremental de minimis costs, it expects to benefit from a full year of mitigation measures, leading to an estimated $320-million net impact on the operating margin tied to both higher tariffs and the exemption removal. This outlook underscores the near-term headwinds but also highlights its proactive approach to managing through evolving trade dynamics.
The SG&A expense rate is expected to rise 80-90 bps year over year for fiscal 2025, above the prior mentioned 50 bps. The increase in deleverage is led by softer top-line projections, currency headwinds and ongoing investments in its Power of Three x2 plan despite several enterprise-wide cost savings initiatives in place. Throughout fiscal 2025, the company will continue to allocate resources to support market growth, advance international expansion and strengthen technology capabilities.
LULU expects the fiscal 2025 operating margin to contract 390 bps year over year. The company projects an EPS of $12.77-$12.97, suggesting an increase from the $14.64 reported in fiscal 2024. The revised EPS view marks a decline from $14.95-$14.78 projected earlier. The company anticipates an effective tax rate of 30% for fiscal 2025. lululemon expects a capital expenditure of $700-$720 million for fiscal 2025 compared with $740-$760 mentioned earlier.
For the third quarter of fiscal 2025, management anticipates net revenues of $2.47-$2.5 billion, indicating 3-4% year-over-year growth. The company expects a 410-bps year-over-year decline in the gross margin due to higher tariff rates and the removal of the de minimis exemption, along with fixed cost deleverage and continued investment in its multi-year distribution center project. The tariff and de minimis impacts are expected to be 230 bps. Additionally, the company expects an 80-bps year-over-year increase in markdowns, driven by higher seasonal clearance.
SG&A, as a percentage of sales, is expected to deleverage 150 bps year over year, driven by higher foundational investments, including related depreciation and strategic initiatives to enhance brand awareness and support growth. The operating margin for the fiscal third quarter is expected to decline 560 bps year over year, including a 230-bps impact of tariffs and de minimis.
EPS for the fiscal third quarter is expected to be $2.18-$2.23, whereas it reported EPS of $2.87 in the prior-year quarter. LULU estimates an effective tax rate of 30.5% for the fiscal third quarter.
Solid Picks in LULU’s Broader Industry
We have highlighted three better-ranked stocks from the same industry, namely Ralph Lauren Corporation (RL - Free Report) , Guess?, Inc. (GES - Free Report) and Hanesbrands Inc. (HBI - Free Report) .
Ralph Lauren is a major designer, marketer and distributor of premium lifestyle products in North America, Europe, Asia, and internationally. RL flaunts a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Ralph Lauren’s fiscal 2025 sales and earnings indicates growth of 6% and 19.8%, respectively, from the year-ago period’s reported figures. RL has a trailing four-quarter earnings surprise of 8.5%, on average.
Guess designs, markets, distributes and licenses casual apparel and accessories for men, women and children as per the American lifestyle and European fashion sensibilities. GES sports a Zacks Rank #2 (Buy) at present.
The Zacks Consensus Estimate for Guess’ current fiscal-year sales indicates growth of 7% from the year-ago period’s reported figure. The consensus estimate for GES earnings suggests a year-over-year decline of 18.4%. GES has a trailing four-quarter earnings surprise of 26.7%, on average.
Hanesbrands engages in the design, manufacture, sourcing and sale of apparel essentials for men, women and children in the United States and internationally. HBI currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Hanesbrands’ current fiscal-year sales indicates a decline of 11.3% from the year-ago period’s reported figure. The consensus estimate for HBI earnings suggests a year-over-year surge of 65%. HBI has a trailing four-quarter negative earnings surprise of 56.1%, on average.