Disclosure: I am a shareholder of Lululemon. This note reflects my personal interpretation of the company’s earnings and is not investment advice.
Lululemon shares jumped more than 10% after earnings, and while that might seem surprising given ongoing concerns about U.S. consumer demand, the reaction becomes understandable once you read the earnings call carefully.
If you want more background, I wrote about this business three months ago in Zero Returns in Six Years, and my thinking hasn’t changed much after this quarter.
Three things mattered most to the market:
Revenue and earnings per share beat expectations
International growth remained strong, led by China
A CEO transition was announced, opening the door for a strategic reset
This was not a great quarter.
But it was clearly better than feared.
Lululemon Q3 2025 Earnings: Key Financial Results
Revenue: $2.6 billion (+7% YoY)
Comparable sales: +2%
Gross profit: $1.43 billion
Gross margin: 55.6% (down 290 basis points)
Operating income: $436 million
Earnings per share: $2.59 (down YoY, but above expectations)
Despite margin pressure, Lululemon delivered better-than-expected revenue and EPS, the main reason the stock moved higher.
Lululemon Beat Revenue and EPS Expectations
The earnings beat did not come from North America.
It came from international markets, especially China.
China Mainland
Revenue growth: +46%
Comparable sales: +25%
Strong demand for outerwear
Q3 benefited from timing of 11/11 e-commerce activity
Rest of the World (Europe & Asia-Pacific)
Revenue growth: +19%
Comparable sales: +9%
Continued store expansion and solid execution
International growth more than offset U.S. weakness.
That stronger-than-expected top line also helped reduce the impact of tariffs and supported earnings per share.
North America Remains the Key Weakness
Management was unusually clear about this.
Americas revenue: –2%
Comparable sales: –5%
U.S. revenue down 3%, Canada roughly flat
Importantly, management does not believe this is a brand problem.
They are still:
growing total and retained guests,
acquiring new customers across age groups.
The issue is lower visit frequency and spend, particularly among high-value customers.
They also admitted the product mix in North America is not right. Some core franchises stayed on shelves too long without enough newness. In a more promotional retail environment, consumers are trading down and waiting for value.
This looks like a product-cycle and macro issue, not a deterioration of brand equity.
How Management Plans to Fix the U.S. Business
Management outlined a clear three-pillar turnaround plan.
1. Product Creation
Increase new style penetration to 35% by next spring
Shorten product cycles from 18–24 months to 12–14 months
Build “chase” capabilities to quickly reorder winning products
2. Product Activation
De-clutter stores so newness stands out
Improve local store curation
Upgrade in-store storytelling and website experience
Use membership initiatives to re-engage high-value customers
3. Enterprise Efficiency
Offset tariffs through vendor negotiations and supply-chain efficiency
Selective pricing actions
Tight cost discipline during the reset
This is not a quick fix.
Margins: Short-Term Pressure
Gross margins declined due to:
higher tariffs,
increased markdowns,
a more promotional consumer environment.
However, margins were better than management originally guided, helped by higher revenue and disciplined expense control.
Profit dollars increased even as efficiency declined.
CEO Transition: Why the Market Liked It
After seven years, the CEO will step down early next year. Interim leadership will run the business while a permanent successor is selected.
From an owner’s perspective, the timing makes sense.
This transition comes:
at the end of a multi-year plan cycle,
at a moment when the U.S. business needs renewal,
while international momentum remains strong.
Markets often welcome leadership change when execution needs improvement but the underlying brand remains intact.
Lululemon 2025 Outlook and Guidance
Management reaffirmed full-year guidance:
2025 revenue: approximately $11 billion
2025 EPS: $12.92–$13.02
They also flagged a meaningful headwind:
roughly $210 million reduction in operating income from tariffs and the removal of the de minimis exemption (net of mitigation).
Margins will remain under pressure in the near term, particularly in Q4.
