Q3 2025 Earnings Summary
- Lululemon's China Mainland revenue grew 36% in Q3 on a constant currency basis, with healthy operating margin expansion, and the company expects above 30% growth in Q4, highlighting strong performance and long-term growth potential in the region.
- The company plans to expand into new international markets, including opening an own market in Italy and franchising in Denmark, Belgium, Turkey, and the Czech Republic, reflecting confidence in the brand's global momentum and strong performance in every international market.
- Strong guest retention with a membership base of 24 million in North America, providing opportunities to increase revenue per guest through product newness, and unaided brand awareness in the U.S. has increased to 36%, indicating significant potential for growth in the U.S. market.
- Revenues are lower than expected, and operating margin is being maintained primarily through expense management rather than revenue growth.
- U.S. store traffic was slightly lower than last year, indicating weakness in brick-and-mortar performance in the U.S. market.
- Marketing expenses are expected to increase to approximately 5.5% of sales due to top-line pressure, suggesting higher costs to drive sales.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +9% | Driven by broad-based demand across key markets (notably Rest of World up 50%) and continued store expansion, though YoY growth decelerated compared to the prior year’s higher base (18% in Q2 2024). Ongoing product innovation and global brand recognition support further growth, but softness in the U.S. demands careful inventory and promotional strategies. |
Women’s Product | +8% | Benefited from core franchise performance (e.g., Define, Align) but moderated from a previous 16% increase, partially due to lower “newness” in designs. Future potential hinges on reintroducing fresh silhouettes and maintaining marketing momentum for growth in core and emerging categories. |
Men’s Product | +9% | Continued strength from key franchises (e.g., ABC) and new collections like Steady State drove gains, albeit growing at a slightly slower pace than the prior 15–11% range. Forward focus on expanding technical offerings and leveraging brand ambassadors should sustain momentum across regions. |
Other Categories | +9% | Growth in accessories (Everywhere Belt Bag) and newer segments (footwear, lululemon Studio) pushed this category forward, though well below the 40% jump in Q2 2024. Future initiatives involve continued product expansions, but the company may face increased competition in the accessories space. |
Canada | +9% | Solid performance amid strong brand awareness helped Canada outpace the generally flat U.S. growth, improving from the 10% seen in previous years. Future progress could hinge on broader economic factors, but store expansions and local marketing investments are likely to support sustained demand. |
Rest of World | +50% | Significantly higher than prior-year gains (often in the mid-20% range), propelled by international expansion (notably Asia), increased traffic, and store openings. Looking ahead, rising brand acceptance and continued market entries are set to keep fueling international growth, though geopolitical risks remain. |
Operating Income (EBIT) | +45% | Heightened by gross margin expansion (favorable product costs and reduced air freight) and disciplined SG&A despite a more modest top-line uplift compared to Q2 2024. Ongoing cost efficiencies and balanced investments in digital/store growth will be critical to protecting margin amid potential macroeconomic headwinds. |
Net Income | +42% | Lifted by improved product margins and higher interest income, building on prior-year gains of around 15–18%. Tax rate management and share repurchases also boosted EPS, but sustained margin improvement remains contingent on prudent inventory management and balanced operating expenses. |
Diluted EPS | +46% | Fueled by net income growth and an ongoing share repurchase program, surpassing the previous year’s increase of roughly 18–20%. Forward EPS likely hinges on effective global expansion, continued product innovation, and managing potential currency and cost pressures. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q4 2025 | no prior guidance | $3.475B to $3.51B (8%-10% growth; 3%-4% ex 53rd week) | no prior guidance |
Gross margin | Q4 2025 | no prior guidance | Decrease by 20–30 bps | no prior guidance |
SG&A rate | Q4 2025 | no prior guidance | Deleverage by 90–100 bps | no prior guidance |
Operating margin | Q4 2025 | no prior guidance | Deleverage by 110–130 bps | no prior guidance |
EPS | Q4 2025 | no prior guidance | $5.56 to $5.64 | no prior guidance |
Effective tax rate | Q4 2025 | no prior guidance | 29.5% | no prior guidance |
Inventory | Q4 2025 | no prior guidance | Dollar inventory expected to increase in mid-teens | no prior guidance |
Revenue | FY 2025 | no prior guidance | $10.452B to $10.487B (9% growth; 7% ex 53rd week) | no prior guidance |
Gross margin | FY 2025 | no prior guidance | Increase by 10–20 bps vs. FY 2024 | no prior guidance |
SG&A rate | FY 2025 | no prior guidance | Increase by 20–30 bps vs. FY 2024 | no prior guidance |
Operating margin | FY 2025 | no prior guidance | Decrease by 10–20 bps vs. FY 2024 | no prior guidance |
EPS | FY 2025 | no prior guidance | $14.08 to $14.16 (vs. $12.77 in FY 2024) | no prior guidance |
Effective tax rate | FY 2025 | no prior guidance | 30% | no prior guidance |
Capital expenditures | FY 2025 | no prior guidance | $670M to $690M | no prior guidance |
Store openings | FY 2025 | no prior guidance | 40 net new company-operated stores | no prior guidance |
Square footage growth | FY 2025 | no prior guidance | Low double digits (excluding Mexico), low teens (including Mexico) | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q3 2025 | $2.34B to $2.365B | $2,396.66M | Beat |
EPS (Diluted) | Q3 2025 | $2.68 to $2.73 | $2.86 | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Strong international expansion, including China and new European markets | Consistently cited as a key growth driver, with strong China performance (34% in Q2 , 52% in Q1 , 78% in Q4 ) and ongoing expansion in EMEA/APAC. | China Mainland up 39% (36% in constant currency), expansion to Italy, Denmark, Belgium, Turkey, and Czech Republic, emphasizing continued global momentum. | Continues to be a core focus, with new markets added and ongoing confidence in global opportunities. |
Slowing or stagnant U.S. sales with uncertain timeline for improvement | Acknowledged flat U.S. sales in Q2 , slower performance in Q1 , and headwinds in Q4 cited as part of a challenging environment. | Flat U.S. revenue again, tied to lower product newness and cautious consumer trends; no specific timeline for turnaround. | Still struggling, but cautiously optimistic with product changes. |
Growing membership base driving engagement and loyalty | Previously at 20+ million in Q2 , 20 million in Q1 , and 17 million in Q4 2024 , all cited as key to increasing spend and engagement. | Membership base grew to 24 million in North America, with added perks to heighten loyalty and drive higher revenue per guest. | Consistent expansion and continued focus on member benefits. |
Returning to higher levels of product newness to reaccelerate growth | Noted gap in newness in Q2 with plans to fast-track product , similar issues in Q1 , and emphasis on launching new franchises in Q4. | Below historical levels, but making steady progress; targeting Q1 2025 for full return to historical newness. | Ongoing initiative to rebuild excitement and boost sales. |
Increasing marketing and SG&A expenses potentially pressuring margins | Managed SG&A in Q2 (flat vs. 2023) , no major margin pressure in Q1 , and some deleverage in Q4 2024 tied to strategic investments. | Expect 90-100 bps SG&A deleverage in Q4 vs. prior year, with marketing spend rising to 5.5% of sales. | Increasing spend underscores brand-building but may constrain near-term margins. |
Uncertainty around long-term operating margin expansion targets | Similar caution in Q2, with commitment to Power of Three x2 plan but no precise outer-year targets ; no explicit mention in Q1, limited color in Q4. | Too early to give specifics for 2025, still committed to modest expansion; more details expected in March. | Continues to be cautious, linked to top-line growth. |
High reliance on international markets amid macro concerns | Identified as key in Q2 (29% increase ), noted underpenetration in Q1 , and marked outperformance vs. U.S. in Q4. | Cited 33% YoY worldwide growth outside the U.S., seeing resilience in China and other regions despite macroeconomic uncertainties. | Steadily emphasized, with global success offsetting U.S. softness. |
Leadership changes impacting product innovation | In Q2, moved to separate reporting lines for design vs. merchandising ; in Q1, reorg followed CPO departure ; no Q4 mention. | Positive progress from the new product structure, melding merchandising and brand teams; efficiency starting to show. | Still relevant, though no longer a major spotlight topic. |
Men’s segment outperformance contributing to market share gains | Showed strength in Q2 (11% growth ), outperformed in Q1 , and up 15% in Q4. | Men’s business grew 9%, matching women’s, aiding global market share gains. | Consistent driver of growth, reinforcing broader market share. |
Potential increased markdowns raising profitability concerns | Flat to slightly improved in Q2 , slight Q1 increase but viewed as temporary , and flat in Q4. | Markdowns flat YoY; used mainly for end-of-season clearance, no major impact on profitability. | Remains controlled, not a significant margin risk. |
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U.S. Sales Outlook
Q: When will U.S. comps turn positive?
A: Management is confident that U.S. comparable sales will inflect positively by Q1 2025, driven by increased "newness" in product offerings returning to historical levels. Guests remain engaged and loyal, responding well to new products despite current negative comps. -
Gross Margin Expectations
Q: How sustainable are gross margin drivers into Q4?
A: Gross margin benefited by 50 basis points in Q3 from lower inventory provisions and higher initial markups. For Q4, they're expecting a 50–60 basis point product margin benefit, partially offset by fixed cost deleverage due to store growth amid lower revenue trends. -
China Growth and Margins
Q: How is China performing financially?
A: China Mainland achieved 36% growth in Q3 on a constant currency basis. Healthy operating margin expansion is reported, with expectations of over 30% growth again in Q4. Management sees long-term opportunity despite not currently optimizing margins. -
Product Newness Strategy
Q: How will product "newness" change in 2025?
A: By Q1 2025, product "newness" will return to historical levels, enhancing guest engagement. This includes more colors, patterns, and innovative items within core franchises. Recent new products are performing well, boosting confidence in this strategy. -
Inventory Management
Q: What's driving mid-teens inventory growth in Q4?
A: Inventory is expected to grow in the mid-teens in Q4, up from +8% in Q3, due to chasing seasonal newness and setting up for H1 2025. Inventory turns are slightly slower than history but align with sales growth plans. -
Potential Tariff Impact
Q: How could tariffs affect costs next year?
A: Exposure to potential tariffs is limited, as only 3% of goods are sourced from China. Sourcing from Mexico is less than half a percent, and none from Canada. Widespread tariffs on all imports would have a more significant cost impact. -
Marketing Spend
Q: How is marketing investment changing?
A: Marketing spend is increasing to 5.5% of sales this year, up from the usual 4.5–5%. Investments focus on community events, ambassador relationships, and top-of-funnel initiatives, driving unaided brand awareness in the U.S. to 36%. -
International Expansion Plans
Q: What are the plans for new markets?
A: In 2025, Lululemon plans to open owned stores in Italy and franchise stores in Denmark, Belgium, Turkey, and the Czech Republic. This expansion is driven by strong brand momentum globally and demand in new markets. -
Traffic Trends and Customer Acquisition
Q: How are traffic and customer acquisition progressing?
A: Global traffic is positive across both channels. In the U.S., e-commerce traffic remains positive while stores are slightly lower. The membership base in North America has grown to over 24 million, enhancing guest engagement and retention. -
Competitive Landscape and Promotions
Q: How is the promotional environment affecting you?
A: Despite a heavily promotional period, Lululemon maintains a non-promotional, regular price business, unlike others in the space. Management is pleased with results, indicating strong brand resonance and guest response to products during the holiday season.
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