The athleisure brand recorded solid growth abroad in the second quarter of fiscal year 2025. However, weak demand and higher tariffs weighed on profitability, forcing the company to revise its annual targets.
Lululemon Athletica was under pressure in the second quarter of 2025. Although sales rose by 7 percent to $2.5 billion, driven by strong international business (+22%, +20% currency-adjusted), demand in the US remained subdued: comparable sales in North America fell by 4 percent.
The gross margin fell by 110 basis points to 58.5 percent, weighed down by higher freight costs, unfavorable exchange rates, and stronger price discounts in the US business. Operating income slipped by 3 percent to $523.8 million, while diluted earnings per share were slightly below the previous year’s figure of $3.15 at $3.10. Net income declined by 6 percent to $370.9 million, down from $392.9 million a year earlier.
Lululemon strong in China, weak in the US
The international upswing was particularly noticeable in Asia, where the Canadian athleisure brand continued to expand through new store openings and increasing brand awareness. Sales in Mainland China grew by 25 percent year-over-year, or 24 percent on a constant dollar basis, while the “Rest of World” region rose 19 percent, or 15 percent adjusted for currency, according to the company’s official filings.
In contrast, customer traffic declined in North America. According to management, the reasons for this are economic uncertainty, inflation, and cautious consumer behavior. In the Americas, total sales rose by only 1 percent to $1.8 billion, with comparable sales falling by 3 percent. While Canadian sales increased by 1 percent, US business remained at the previous year’s level.
CEO Calvin McDonald said, “Internationally, we continue to see positive momentum, but we are disappointed with the performance in the US and the execution of some product initiatives.” The company now wants to revise its product range and pricing strategy to revitalize its US business.
Digital channels and accessories show significant growth
In Q2 FY25, Lululemon achieved solid growth in several product segments. According to industry sources, digital sales rose by 7 percent to $1 billion, accounting for around 40 percent of total sales. Men’s apparel grew by 6 percent and women’s apparel by 5 percent. The accessories and other products segment performed particularly well, growing by 15 percent – an indication of the increasing diversification of the product range.
High inventories and tariffs weigh on margins
Inventories are a cause for concern, rising 21 percent year-on-year to $1.7 billion. In terms of volume, the increase was 13 percent. CFO Meghan Frank emphasized that the build-up was “strategic” – for example, in connection with new products and expansion plans.
In addition, rising US tariffs are putting pressure on margins: Lululemon expects a negative impact on gross profit of $240 million for the full year, even after planned countermeasures such as supplier savings and selective price adjustments. According to the company, the impact is already clearly noticeable.
Outlook lowered – Brand remains solidly positioned
In light of the challenges, Lululemon is revising its forecast for the full year. Revenue is now expected to be between $10.85 billion and $11.0 billion (previously $11.15bn to $11.30bn), representing percentage growth of 2 to 4 percent and 4 to 6 percent, respectively. Lululemon expects earnings per share to be between $12.77 and $12.97 (previously $14.58–$14.78). For the third quarter, the company expects sales of $2.47 to $2.5 billion and EPS of $2.18 to $2.23.
Despite the cautious outlook, the company remains in a solid financial position: $1.2 billion in cash, no long-term debt, and 14 new stores, bringing the global store network to 784 locations. “We remain disciplined and are investing selectively in our growth potential,” said Frank. According to the CFO, the focus remains on long-term expansion, particularly in Asia and in the digital business, where momentum remains stable.
