Lululemon Revises 2025 Revenue and EPS Guidance
Lululemon Athletica Inc. (NASDAQ: LULU) has updated its financial outlook for the full year 2025, adjusting revenue estimates to a new range of $10.85 billion to $11 billion and lowering its projected earnings per share (EPS) to between $12.77 and $12.97. The announcement comes as the company faces notable challenges in the U.S. market and navigates rising tariff pressures and regulatory shifts.
During the company’s second quarter 2025 earnings call, CEO Calvin McDonald acknowledged that, while quarterly EPS surpassed internal expectations, revenues failed to meet guidance, prompting a revision in both revenue and earnings forecasts for the current fiscal year. International sales momentum has been strong, particularly in China and other overseas markets, yet softness in the U.S. landscape and industry-wide tariff pressures have weighed heavily on overall performance.
Understanding the Downward Guidance Revision
The decision to lower estimates reflects broader sector headwinds. McDonald pointed out that the company’s offerings in lounge and casual wear have become too predictable and less appealing to consumers—a trend echoed by diminishing sales in these segments. In contrast, performance apparel continues to register share gains, but the underperformance of casual products significantly affected top-line results. Notably, the recently removed de minimis import tax exemption and increased tariffs have contributed to anticipated gross margin compression.
To reinvigorate product innovation, Lululemon has appointed Ranju Das as Chief AI and Technology Officer. This newly created leadership position is tasked with accelerating product development cycles and leveraging artificial intelligence in design and supply chain management. The company expects these strategic changes, alongside cost mitigation initiatives, to eventually restore sales momentum and margin expansion.
Regional Highlights: U.S. Weakness, Global Strength
While North American performance underwhelmed, international divisions reported healthy increases. China, now Lululemon’s second-largest market, saw a 25% surge in revenue during Q2, while the broader “Rest of World” category posted a 19% gain. Overall, Q2 net revenue grew 7% year-over-year to $2.5 billion, buoyed by a 9% increase in digital channel sales and strong contributions from both men’s and women’s activewear lines. However, comparable sales growth remained muted at only 1%, signaling continued caution in North American consumer behavior.
Projections for the regional breakdown now show U.S. revenue dipping 1% to 2% in 2025, with Canadian sales estimated to remain flat. Expectations for China Mainline revenue have been revised substantially upward—anticipating 20% to 25% growth—while the rest of the world is similarly expected to expand around 20%.
Tariffs, Price Increases, and Margin Pressures
Tariffs and the removal of favorable import provisions have emerged as major disruptors for Lululemon’s bottom line. The company forecasts a gross margin decline of roughly 300 basis points in 2025 compared to 2024, attributed to additional markdowns and the extra costs imposed by tariffs. In response, Lululemon is implementing targeted pricing actions on select inventory and optimizing supply chain partnerships to reduce costs. Yet, company leaders are clear that fully offsetting the incremental tariff-related expenses remains a difficult task.
For the third quarter, management anticipates revenue between $2.47 billion and $2.5 billion, and EPS in the range of $2.18 to $2.23—outlook figures that further underscore a conservative approach to the near future.
Inventory and Expense Management: Strategic Adjustments
Inventory management has become a heightened area of focus as the company aims to reduce markdown risk and better align output with demand. Q2 ended with inventory up 21% to $1.7 billion, with company leaders describing new agile processes and vendor partnerships designed to cut lead times and boost trend responsiveness. Lululemon also repurchased 1.13 million shares in the quarter, demonstrating confidence in long-term value creation.
The company continues to pursue disciplined cost control and supply chain improvements. However, external factors—including lackluster casual product demand in the U.S. and higher operating costs due to tariffs—have made full mitigation of margin pressures challenging.
Analyst and Management Perspectives
Financial analysts, while recognizing Lululemon’s efforts at innovation and expansion, conveyed concerns about the pace at which new product strategies and pricing adjustments would translate to improved financial performance, particularly in North America. Management’s responses remained measured but pragmatic, emphasizing that most mitigation actions and assortment resets will reach full impact by spring 2026.
Looking Forward: Strategic Reset and Long-Term Focus
Lululemon describes the current period as a strategic reset. Management is fully invested in revitalizing the brand’s appeal in the U.S. and capitalizing on international momentum. New product launches, enhanced inventory agility, and technology-driven innovation are expected to form the pillars of the brand’s recovery efforts. The ultimate goal is to resume sustainable top-line growth and protect bottom-line resilience, even in the face of ongoing industry and economic headwinds.
As Lululemon moves deeper into fiscal 2025, stakeholders will be watching closely for signs of improvement in U.S. demand and for measurable gains resulting from the brand’s ambitious supply chain and innovation initiatives.
