Lululemon Athletica's third-quarter revenue and earnings per share both exceeded expectations, and the company raised its full-year 2025 revenue guidance. Amid intensifying competition and pressure from the founder, the company announced that CEO Calvin McDonald will step down on January 31. Following the earnings release, the company's stock surged 11% in after-hours trading.
$Lululemon Athletica (LULU.US)$The third-quarter earnings report released after the market closed on Thursday showed that the company's net revenue and earnings per share for the quarter exceeded analysts' expectations, and it raised its full-year 2025 revenue guidance. The company announced that its CEO, Calvin McDonald, will step down on January 31. Following the announcement, shares of Lululemon Athletica surged more than 10%.
Below are the key highlights from Lululemon Athletica's third-quarter earnings report:
Key Financial Data:
Net Revenue: Lululemon Athletica's third-quarter net revenue grew by 7% to USD 2.6 billion, surpassing analysts' expectations of USD 2.48 billion. Comparable sales increased by 1%, or 2% on a constant currency basis.
Gross Profit: Lululemon Athletica's gross profit for the third quarter rose by 2% to USD 1.4 billion; gross margin declined by 290 basis points to 55.6%.
Operating Profit: Lululemon Athletica's operating profit for the third quarter fell by 11% to USD 435.9 million; operating margin decreased by 350 basis points to 17.0%.
Earnings Per Share: Lululemon Athletica's third-quarter earnings per share were USD 2.59, exceeding analysts' expectations of USD 2.25, compared to USD 2.87 in the third quarter of 2024.
Store Count: The company added a net of 12 new directly operated stores in the third quarter, bringing the total number of stores to 796 at the end of the quarter.
Inventory: Inventory at the end of the third quarter increased by 11% year-over-year to USD 2 billion, compared to USD 1.8 billion at the end of the third quarter of 2024. In terms of volume, inventory grew by 4%.
Regional Data:
Americas Region: Lululemon's net revenue in the Americas declined by 2% in Q3, with comparable sales down 5%.
International Region: Lululemon's net revenue in the international region grew by 33% in Q3, with comparable sales up 18%.
Guidance:
Q4 2025:
Net Revenue: The company expects net revenue to be between USD 3.5 billion and USD 3.585 billion, representing a year-over-year decline of 3% to 1%, falling short of analysts' expectations of USD 3.59 billion; excluding the 53rd week of 2024, the corresponding growth would be 2% to 4%.
Earnings Per Share (EPS): EPS is expected to be between USD 4.66 and USD 4.76, below analysts' expectations of USD 5.03.
Full Year 2025:
Net Revenue: The company forecasts full-year net revenue to be between USD 10.962 billion and USD 11.047 billion, in line with market expectations, representing a year-over-year increase of 4%; excluding the 53rd week of 2024, the corresponding growth would be 5% to 6%. The company had previously projected a range of USD 10.85 billion to USD 11 billion.
Earnings Per Share (EPS): EPS is expected to be between USD 12.92 and USD 13.02, compared to analysts' expectations of USD 13.
The company announced that CEO Calvin McDonald will leave the company at the end of January, and a search for his successor is underway. Chairman Marti Morfitt will assume additional responsibilities as Executive Chair. During the search for a new CEO, Chief Financial Officer Meghan Frank and Chief Brand Officer André Maestrini will serve as interim co-CEOs.
In its press release, the company stated that the board is working with 'a leading executive search firm' to identify the next CEO. Calvin McDonald will continue to serve as a senior advisor until March 31.
At the same time, the company raised its full-year earnings outlook.$Lululemon Athletica (LULU.US)$Full-year net revenue is now expected to be between approximately USD 11 billion and approximately USD 11.05 billion, higher than the previous guidance.
As of Thursday's closing price, the company’s stock price has fallen more than 50% year-to-date. Since Calvin McDonald took office in 2018, Lululemon Athletica’s share price has risen by 37%, while the S&P 500 Index has increased by 142% during the same period.
Facing intensifying challenges
According to media reports, over the past year,$Lululemon Athletica (LULU.US)$the business has faced pressure, including the impact of tariffs, weakness in U.S. consumer demand, and its product lineup no longer appealing to customers as it once did. Data shows that sales growth is nearing its lowest level since the company’s IPO in 2007.
Lululemon Athletica, known for its high-priced leggings and credited with almost creating the 'athleisure' category, is now facing fierce competition from lower-priced emerging brands such as Alo Yoga and Vuori. In September, company executives expressed disappointment with their performance and product execution in the U.S. market.
Analysts’ forecasts indicate that,$Lululemon Athletica (LULU.US)$growth has slowed in recent quarters, and this trend is expected to continue. To drive growth and attract more consumers, Lululemon has been working to expand its international operations and offer a broader range of products. Beyond athletic wear, the company has expanded into footwear, outerwear (such as coats and jackets), and casual pants suitable for workplace settings.
The company’s overall business is still growing, but the growth is primarily driven by expansion in international markets and new store openings. Its largest market, the Americas, is experiencing a decline.
Andrew Rocco, Equity Strategist at Zacks Investment Research, stated:
"The era of rapid growth for Lululemon has clearly passed and is unlikely to change in the short term. However, with the valuation having dropped to a low level, a CEO transition underway, and a strong start to the holiday season, some 'bottom-fishing investors' have begun purchasing the stock."
Founder Pressure Leads to CEO Departure
Calvin McDonald's departure came after pressure from billionaire founder and shareholder Chip Wilson, who called for changes at the board level and a renewed focus on product quality. Two months ago, Wilson placed a full-page advertisement in The Wall Street Journal, stating that the company was on a 'nosedive' and needed to 'stop sacrificing customers to appease Wall Street.'
During McDonald’s tenure,$Lululemon Athletica (LULU.US)$the company entered new categories such as sneakers, attempting to challenge brands like Nike and Adidas. It also expanded its size range and partnered with Fanatics Inc. and the National Hockey League (NHL) to launch fan apparel.
McDonald stated in a press release:
"Serving as the CEO of Lululemon has been the highlight of my career, and I am incredibly proud of what the team has achieved over the past seven years. Together, we transformed the athletic apparel industry, and the future opportunities for Lululemon are immense. I believe in the strength of our product pipeline and the action plans already in place, which will yield positive results and create value for shareholders in the coming months and years."
Neil Saunders, Managing Director at GlobalData, stated that Lululemon’s disappointing performance stems from a weakening athleisure market, intensifying competition, and the company’s failure to differentiate its products from rival brands.
He commented via email:
“Lululemon is now a ship without a captain at a time when it desperately needs clear direction. While the market and investors might welcome change, this adjustment appears abrupt and rushed. Lululemon must either appoint a new CEO as soon as possible or establish a very clear transitional strategy to help steer the company back on course.”
Significantly impacted by tariffs
The company is working to enhance product appeal and accelerate its product development cycle. During the earnings call, executives noted positive market feedback on special edition training gear. They also acknowledged that the company had allowed certain products to remain in their lifecycle for too long.
During the earnings call, interim co-CEO Frank stated,$Lululemon Athletica (LULU.US)$The company plans to increase marketing investment in the fourth quarter to help boost customer traffic and strengthen brand awareness. Additionally, the company expects discount levels to rise as it clears excess inventory.
Lululemon has been particularly affected by tariffs implemented during former U.S. President Trump’s administration and has subsequently raised prices on some products to address the changes, including the elimination of the de minimis exemption — which had previously allowed the company to ship e-commerce orders under $800 from Canada to the U.S. without taxation.
In September this year, the company stated that tariffs are expected to reduce annual profits by $240 million, with the majority of these costs stemming from the elimination of the de minimis exemption.
Frank stated that the company anticipates a decline in gross margin for the fourth quarter, primarily due to tariffs and the removal of the de minimis exemption. The company plans to cut costs and improve efficiency to help mitigate the impact.
Analysts suggest that the leadership change also reflects a series of significant adjustments in the management of retailers in recent times. Retailers are attempting to attract younger and more cautious consumers while addressing supply chain and operational challenges. The company also approved an additional $1 billion increase to its stock repurchase program.
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