Lululemon's Strong Earnings Fall Short of Analyst Expectations for 2025 Outlook

Despite beating Wall Street's expectations for fiscal fourth-quarter earnings and revenue, Lululemon faced a significant setback with a disappointing 2025 guidance that sent shares plunging by 15% on Friday morning. The athleticwear giant reported strong results for the quarter ended February 2, but the company's cautious outlook for the upcoming year caused investor concerns, reflecting broader market anxieties about inflation and economic uncertainty.

Survey Reveals Declining Consumer Spending

On the company’s earnings call on Thursday, CEO Calvin McDonald shared that Lululemon had conducted an internal survey earlier in the month, revealing that consumers are scaling back their spending due to concerns over inflation and economic instability. This shift in consumer behavior has resulted in lower foot traffic in Lululemon stores across the U.S., a trend that has also impacted the broader retail industry. However, McDonald also emphasized that consumers continue to respond positively to the company's product innovations.

“While macroeconomic and geopolitical uncertainty remains high, we are staying focused on the factors we can control,” said McDonald during the call.

Fourth-Quarter Performance Outperforms Expectations

Despite the market turbulence, Lululemon's Q4 performance exceeded analyst expectations. Here's a look at how the company's results compared to Wall Street's projections:

• Earnings per Share (EPS): $6.14, beating the expected $5.85
• Revenue: $3.61 billion, surpassing the $3.57 billion forecast

This represents a year-over-year revenue increase of 12.5% from the $3.21 billion posted during the same period in 2023. For the full year of 2024, Lululemon's revenue climbed 10% to $10.59 billion, compared to $9.62 billion in 2023.

Challenges Ahead: Inflation and Trade Concerns

Looking ahead, Lululemon is bracing for slower sales growth amid ongoing concerns about a weakening economy and rising tariffs. The company acknowledged that the U.S. trade war—which affects countries like Canada, Mexico, and China—may take a toll on profits. However, Lululemon expects any impact to be minimal.

Lululemon's CFO Meghan Frank also highlighted that the company anticipates a 0.6% decrease in gross margin for 2025, driven by higher fixed costs, foreign exchange fluctuations, and the aforementioned tariffs.

First-Quarter and Full-Year 2025 Guidance Falls Short

For the first quarter of fiscal 2025, Lululemon's revenue is expected to range between $2.34 billion and $2.36 billion, falling short of the $2.39 billion expected by analysts. Additionally, the company expects EPS in the range of $2.53 to $2.58, below the $2.72 forecast by analysts.

For the full year, Lululemon's revenue forecast is projected to fall between $11.15 billion and $11.30 billion, while analysts had previously expected $11.31 billion. Earnings per share for fiscal 2025 are expected to range from $14.95 to $15.15, missing the consensus estimate of $15.31.

U.S. Market Slows, But International Growth Flourishes

Lululemon's comparable sales—a key metric representing revenue from both e-commerce and stores open at least 12 months—rose by 3% year-over-year during the quarter, falling short of the 5.1% expected by analysts. Notably, sales in the Americas were flat, while international markets saw a strong 20% growth.

McDonald pointed out that the company’s U.S. business stabilized in the second half of the year, largely attributed to new product launches that have generated positive consumer feedback. In an effort to drive future growth, Lululemon plans to expand its presence in international markets, with new store openings in Italy, Denmark, Belgium, Turkey, and the Czech Republic in the coming year.

What’s Next for Lululemon?

Lululemon's strong Q4 earnings and robust international growth signal its potential to continue thriving globally. However, the company faces headwinds in its U.S. market, where slower consumer spending and economic uncertainty are expected to linger throughout 2025.

As Lululemon adapts to the challenging economic landscape, the company will need to focus on product innovation and market expansion to maintain its momentum and meet investor expectations in the year ahead.

‍