Athletic apparel retailer Lululemon (NASDAQ: LULU) reported Q4 CY2025 results exceeding the market’s revenue expectations, but sales were flat year on year at $3.64 billion. On the other hand, next quarter’s revenue guidance of $2.42 billion was less impressive, coming in 2.1% below analysts’ estimates. Its GAAP profit of $5.01 per share was 4.8% above analysts’ consensus estimates.
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Lululemon (LULU) Q4 CY2025 Highlights:
- Revenue: $3.64 billion vs analyst estimates of $3.57 billion (flat year on year, 1.8% beat)
- EPS (GAAP): $5.01 vs analyst estimates of $4.78 (4.8% beat)
- Adjusted EBITDA: $946.8 million vs analyst estimates of $934.1 million (26% margin, 1.4% beat)
- Revenue Guidance for Q1 CY2026 is $2.42 billion at the midpoint, below analyst estimates of $2.47 billion
- EPS (GAAP) guidance for the upcoming financial year 2026 is $12.20 at the midpoint, missing analyst estimates by 2.8%
- Operating Margin: 22.3%, down from 28.9% in the same quarter last year
- Locations: 811 at quarter end, up from 767 in the same quarter last year
- Same-Store Sales rose 3% year on year, in line with the same quarter last year
- Market Capitalization: $18.68 billion
StockStory’s Take
Lululemon’s fourth quarter saw management address persistent challenges in its core North American market, with particular focus on restoring full-price sales and managing the impact of higher tariffs. Interim Co-CEO and CFO Meghan Frank pointed to new product launches such as Unrestricted Power and ThermoZen as drivers of “great green shoots,” but acknowledged that markdowns and tariff headwinds continued to weigh on margins. Interim Co-CEO Andre Maestrini emphasized the importance of enhancing guest experience both in stores and online, stating, “We are evolving the experience to better reflect the premium positioning of the lululemon brand.” Despite international strength, the market responded negatively, reflecting investor concern over flat overall sales and significant operating margin compression.
Looking ahead, management’s guidance reflects a cautious outlook for North America, underpinned by the expectation that improvements in full-price sales will emerge gradually over the coming year. Frank noted that revenue growth in China and the Rest of World segment should partially offset domestic softness, but that higher tariffs and continued investments will pressure margins. She explained, “An improvement in overall trends in North America will likely progress over the course of the year and into 2027.” The leadership team is prioritizing innovation in product assortment and a pivot to more impactful marketing activations, while also leveraging automation and AI investments to improve operational efficiency.
Key Insights from Management’s Remarks
Lululemon’s leadership attributed flat sales and reduced margins to North American traffic softness, higher markdowns, and sustained tariff headwinds, while highlighting international momentum and new product launches as bright spots.
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North American traffic challenges: Management identified soft store traffic and higher markdowns in the U.S. as persistent headwinds, with Frank noting the need to “return to full-price sales growth” through increased product newness and reduced inventory excess. The company is working to reduce its reliance on promotional activity and reinforce its premium positioning.
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International strength: Maestrini highlighted continued momentum in Mainland China, South Korea, and Europe, pointing to strong responses to localized campaigns and new store openings. Management sees these regions as engines for growth, with China Mainland revenue up 28% in the quarter, driven by categories like outerwear and lounge.
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Product innovation pipeline: Frank emphasized the positive guest response to new launches such as Unrestricted Power (a technical training line), ShowZero (no-show-sweat technology), and ThermoZen (insulated outerwear). These innovations are designed to refresh the core assortment and support full-price realization in future quarters.
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Store and digital experience upgrades: The company is implementing a new store design playbook featuring curated product displays and clearer activity-based merchandising. Online, enhancements to the e-commerce platform are aimed at improving storytelling and customer navigation.
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Tariff and cost pressures: Frank detailed that tariffs had a negative impact on gross margin, accounting for over 500 basis points of pressure in the quarter. While enterprise efficiency initiatives provided some offsets, ongoing investments in marketing, store labor, and technology are expected to keep operating margins under pressure.
Drivers of Future Performance
Management expects that new product assortments, international expansion, and operational streamlining will be central to navigating ongoing North American demand challenges and margin headwinds in 2026.
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Gradual U.S. recovery: Frank stated that domestic sales are expected to recover slowly, with full-price growth in North America forecasted to turn positive only in the second half of the year. The company is relying on increased product newness, SKU reduction, and targeted guest activations to support this transition.
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Margin and cost headwinds: Gross margin is forecasted to decline further due to higher fixed costs, ongoing tariff exposure, and investments in store openings and supply chain initiatives. Frank mentioned that “tariffs will have a gross impact of 90 basis points,” but that efficiency gains should provide partial offsets.
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Sustained international growth: Management anticipates that China and Rest of World segments will maintain double-digit growth, supported by continued brand activations, localized marketing, and new store openings. Maestrini highlighted the planned entry into new franchise markets, including Greece, Austria, and India, as evidence of the brand’s global runway.
Catalysts in Upcoming Quarters
In the coming quarters, our team will be watching (1) evidence of improving full-price sales and traffic in North America, (2) the company’s ability to offset margin pressures from tariffs and rising operating costs, and (3) continued international momentum—especially in China and Europe. The effectiveness of new product launches and the impact of digital and in-store experience upgrades will also serve as key indicators of progress.
Lululemon currently trades at $155.85, down from $160 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).
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