Q4 2025 Earnings Summary
- Strong guest response to new product innovations and increased newness is driving higher units per transaction (UPT) and average order size. Guests are responding well to innovations like the new front seam legging in the Align franchise, which celebrates its 10th anniversary.
- Continued international growth with plans to open 40 to 45 net new company-operated stores and expand square footage by approximately 10% in 2025, focusing on markets like China and other international regions.
- Effective marketing strategies and brand activations are boosting guest engagement and new customer acquisition. Initiatives like Membership Madness and partnerships with global ambassadors have resulted in strong engagement and positive feedback. Over 15,000 guests signed up for community-based sweat activations during Membership Madness.
- Lululemon is experiencing declining traffic in the U.S., with negative traffic trends impacting sales in the first quarter of 2025, and they expect U.S. revenue growth to be modest for the full year.
- The company is guiding for an operating margin decrease of approximately 100 basis points in 2025 compared to 2024, due to FX headwinds, increased tariffs, and higher expenses, including investments in marketing and technology.
- Inventory levels are expected to increase in the high teens in Q1 2025, which could lead to potential markdowns if sales growth does not meet expectations.
| Metric | YoY Change | Reason |
|---|---|---|
Net Revenue | +12.7% (from $3,205M to $3,611M) | Net revenue increased significantly due to continued operational momentum that builds on prior investments in store expansion and omni‐channel initiatives. The revenue growth from previous periods has matured into strong performance in Q4 2025, reflecting both broader market recovery and improved sales execution. |
Net Income | +11.8% (from $669M to $748M) | Net income improvement reflects enhanced profitability driven by higher revenue and improved margins compared to Q4 2024. The prior period’s investments in cost efficiencies and better gross profit margins continued to yield positive results, contributing to the year‐over‐year net income increase. |
Basic Earnings per Share (EPS) | +16% (from $5.29 to $6.15) | EPS growth prominently benefited from the stronger net income performance and a reduction in the weighted-average shares outstanding through aggressive stock repurchase activities carried over from previous periods. This not only amplified the per-share earnings but also demonstrated confidence in the company’s long-term profitability. |
Operating Cash Flow | +64% (from $1,384M to $2,273M) | Operating cash flow surged as operational efficiencies and working capital management improved relative to Q4 2024. The robust cash generation is a result of higher net revenues combined with prudent cost adjustments and improved cash management practices that were seeded in earlier quarters. |
Financing Cash Flow & Cash Balance | Financing CF: increased outflow from -$38M to -$1,653M; Cash Balance: –11.5% (from $2,244M to $1,984M) | Financing activities showed a dramatic shift due to a substantial increase in share repurchases compared to the previous period. This aggressive buyback strategy, built on prior cash reserves and strategic capital deployment, significantly reduced the cash balance even as other operational metrics improved. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q4 2025 | $2.35B–$2.355B, 6%–7% growth (Q1 2025) | $3.475B–$3.51B, 8%–10% growth* (Q4 2025) | raised |
Gross Margin | Q4 2025 | Approximately flat (Q1 2025) | Decrease by 20–30 basis points (Q4 2025) | lowered |
SG&A | Q4 2025 | Deleverage of 120 basis points (Q1 2025) | Deleverage of 90–100 basis points (Q4 2025) | lowered |
Operating Margin | Q4 2025 | Deleverage of 120 basis points (Q1 2025) | Deleverage of 110–130 basis points (Q4 2025) | no change |
Diluted EPS | Q4 2025 | $2.53–$2.58 (Q1 2025) | $5.56–$5.64 (Q4 2025) | raised |
Effective Tax Rate | Q4 2025 | Approximately 30% (Q1 2025) | Approximately 29.5% (Q4 2025) | lowered |
Store Openings | Q4 2025 | 3 net new stores (Q1 2025) | 18 net new stores (Q4 2025) | raised |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue (USD) | Q4 2025 | $3.475B–$3.51B | $3.611B | Beat |
Revenue (USD) | FY 2025 | $10.452B–$10.487B | $10.588B () | Beat |
Gross Margin | Q4 2025 | Decrease by 20–30 bps year-over-year | 60.4% vs 59.4% YoY () | Beat |
SG&A Rate | Q4 2025 | Deleverage by 90–100 bps year-over-year | 31.5% vs 30.9% YoY () (+63 bps) | Beat |
Operating Margin | Q4 2025 | Deleverage by 110–130 bps year-over-year | 28.9% vs 28.5% YoY () (+34 bps) | Beat |
Diluted EPS (USD) | Q4 2025 | $5.56–$5.64 | $6.14 | Beat |
Effective Tax Rate | Q4 2025 | ~29.5% | 29.24% | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
International expansion and global market growth | Q1 through Q3 consistently emphasized strong growth in Asia (especially China), expanding store networks, new market entries (e.g., Italy, Denmark, etc.) and robust international revenue growth | Q4 maintained the focus with strong China revenue guidance (25–30%) and continued international expansion through new store openings and localized activations | Consistent positive focus: Continued emphasis on global expansion with enhanced focus on robust China performance and targeted local-market activations. |
Product innovation and newness | Across Q1 to Q3, discussions included mixed sentiment due to missed opportunities in the U.S. women's business, narrower color palettes and lower seasonal updates; corrective action plans aiming to return to historical levels were highlighted | Q4 discussed improved guest response with new product launches (e.g. new fabric innovations, updated franchise lines) restoring parity and driving positive results despite earlier challenges | Shift from mixed to optimistic: Early concerns are being mitigated by corrective actions, leading to a more positive outlook for product newness and innovation. |
Operating margin dynamics and expense management | Q1 through Q3 mentioned gradual improvements and adjustments—with Q2 and Q3 showing margin expansion via operating efficiencies, yet also noting FX headwinds and rising tariff impacts as causes for caution | Q4 anticipates a decline in operating margin (around 100–120 bps lower) due to significant FX headwinds and tariff costs, despite ongoing strategic investments in brand and technology | Evolving under cost pressures: Although previous quarters showed improvements, Q4 reflects heightened concerns from FX and tariff impacts while continuing strategic investment. |
U.S. market performance and declining store traffic | Q1 noted modest revenue gains with challenges in conversion linked to product assortment, Q2 reported flat U.S. revenue with healthy traffic trends, and Q3 mentioned steady performance with slight store traffic declines and mixed conversion results | Q4 highlighted persistent challenges in U.S. store traffic driven by a dynamic macro environment, even while AOV and UPT improved; overall, domestic growth remains cautious with limited traffic recovery | Persistent challenges: Despite steady conversion improvements, the U.S. market continues to face declining store traffic and cautious consumer behavior. |
Inventory management and markdown risks | Q1 through Q3 discussions showed stable and well-managed inventory levels (with declines or moderate growth depending on the quarter), controlled markdown risk with flat or improved markdown performance and targeted inventory mix adjustments | In Q4, the company reported a slight inventory increase (around 9%) and maintained flat markdown guidance, reflecting confidence in managing inventory composition despite rising levels | Consistently controlled: Inventory remains well managed, and markdown risks are kept in check across periods with steady adjustments to inventory mix. |
Marketing strategies and brand activations | From Q1 to Q3, the focus was on community-driven events, grassroots activations, successful membership programs, and controlled marketing spend (around 4.5–5% of sales), with innovative campaigns and localized events driving guest engagement | Q4 continued a strong commitment to community-based activations and increased marketing spend (up to 5% of sales), leveraging global campaigns and localized initiatives to sustain guest engagement | Steady and strategic investment: Marketing remains a core pillar with an ongoing commitment to driving guest engagement despite gradual cost pressures, with an incremental increase in spend over time. |
Omnichannel and e-commerce investments | Q1 explicitly emphasized an emerging omnichannel strategy with strong e-commerce performance (8% digital growth, 41% revenue share) and a focus on seamless store/digital integration; Q2 provided some digital channel performance insights | In Q3 and Q4, explicit discussion on omnichannel or e-commerce investments was not featured, with the focus shifting to other growth and operational topics | Early emergence, then de‐emphasis: Initially a highlighted area in Q1, the focus on omnichannel and e-commerce investments has receded in later quarters, suggesting integration into the overall strategy without the need for further emphasis. |
Men's category expansion | Q1 through Q3 consistently highlighted strong performance and market share gains in the men's segment through innovative launches (e.g., Zeroed In, Pace Breaker) and growing inventory in new silhouettes and styles | Q4 reported continued strong momentum with Men's revenue increasing by 12%, reinforcing the category as a significant growth engine alongside sustained product innovation | Consistently robust and growing: The men's category remains a significant, new growth driver with ongoing product innovation and improved market performance across periods. |
Product team reorganization | Q1 and Q2 discussions emphasized significant reorganization with new reporting structures (e.g., Global Creative Director and Chief Merchandising Officer now in new roles) to enhance product innovation and decision-making; Q3 highlighted the benefits and improved efficiency of the new structure | Q4 did not mention any updates or re-emphasis on product team reorganization, indicating that the new structure has been fully integrated and is no longer a focal point | No longer emphasized: Once a key topic in earlier quarters to drive product innovation improvements, the reorganization has been effectively implemented and is no longer a stand-alone focus in Q4. |
-
U.S. Revenue Growth Outlook
Q: Define "modest" U.S. revenue growth this year?
A: Calvin McDonald stated that despite a dynamic macro environment and cautious consumer behavior, they expect low single-digit to mid-single-digit growth in North America, with the U.S. at the lower end and Canada higher. Meghan Frank added that Q1 trends are not materially different from Q4, and they are focusing on new product launches to drive growth. -
Sales Metrics and Product Confidence
Q: Confidence in product pipeline amid softening sales?
A: Meghan Frank expressed confidence in the product pipeline, noting that despite negative traffic trends industry-wide impacting the U.S., they've seen improvements in average order value (AOV) and units per transaction (UPT) due to newness in the assortment. They believe they are well-positioned for when traffic rebounds. -
International Growth Outlook
Q: Is international growth slowing this year?
A: Meghan Frank projected China growth of 25% to 30% and Rest of World approximately 20%, slightly below their 5-year CAGR but still ahead of schedule. They are thoughtfully planning based on current business trends and the forward outlook, navigating near-term headwinds like FX and tariffs. -
Traffic Slowdown
Q: How is traffic trending globally?
A: Meghan Frank noted a notable traffic slowdown in the U.S., with no material differences in Canada or international markets. She mentioned that the shift in Lunar New Year timing has a slight headwind on Q1 trends in China but overall, they are focusing on what they can control. -
Marketing Strategy and Flexibility
Q: Can marketing spend drive U.S. sales?
A: Meghan Frank said marketing spend increased to 5% of sales, up about 50 basis points year-over-year. They plan to maintain this level in 2025 and are closely monitoring business trends to flex marketing investments as appropriate to drive sales, especially with exciting product newness and activations. -
Gross Margin Guidance and Conservatism
Q: Is there conservatism in gross margin guidance?
A: Meghan Frank believes they are well-positioned in their 2025 gross margin guidance, considering factors like category mix, IMU benefits, and reduced freight rates that positively impacted 2024 margins. She expects similar factors could influence margins in 2025 based on business dynamics. -
SG&A Deleverage and Investments
Q: How flexible is SG&A if sales weaken?
A: Meghan Frank explained they have a 40 to 50 basis points SG&A deleverage planned for 2025, with half due to FX headwinds. They are investing in their Power of Three x2 roadmap, including international expansion, store growth, marketing, and tech. They have contingencies to adjust SG&A based on business momentum and environment. -
Inventory Levels and Markdown Guidance
Q: How are inventory levels and markdowns?
A: Meghan Frank is pleased with the inventory composition, expecting high teens growth in inventory to support core stock positions and newness. They anticipate flat markdowns for both Q1 and the full year, indicating confidence in their assortment and sales expectations. -
Marketing Effectiveness Internationally
Q: Plans for international marketing activations?
A: Calvin McDonald emphasized that their U.S. go-to-market strategy of leveraging local communities, stores, and ambassadors is being applied globally. Activations in markets like Tokyo and London are customized based on market maturity to acquire guests and amplify the brand, contributing to international growth. -
Tariff Impacts and Mitigation
Q: How will tariffs affect you, and mitigation plans?
A: Meghan Frank acknowledged approximately 20 basis points of headwind from tariffs in their guidance, reflecting current actions on China and Mexico imports. They are monitoring the environment closely and will adjust their cost structure or pricing if conditions change.