Is Lululemon Still a Winner?
5 Things Investors Need to Know About Lululemon
Dear Investors,
Zee here. Lululemon just reported its fourth quarter fiscal 2025 results, and it’s a tale of two very different stories.
While the yoga pants giant is navigating some serious headwinds in its home market, international growth is exploding. Here’s what you need to know.
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1. The Latest Numbers: A Mixed Bag
Lululemon’s Q4 results showed earnings per share of $5.01 versus expectations of $4.78, and revenue of $3.64 billion versus $3.58 billion expected. On the surface, that looks like a beat. But dig deeper and you’ll see the pain: net income dropped to $586.9 million, or $5.01 per share, compared with $748.4 million, or $6.14 per share, a year earlier.
The culprit? Profit margins got hammered. Gross profit fell to $2.00 billion, down 8.4% from a year earlier, while cost of goods sold rose to $1.64 billion, up 14.9% year over year.
In simple terms: it’s costing Lululemon a lot more to make the same products, and they’re eating most of those costs rather than passing them to customers.
2. Tariffs Are Crushing the Bottom Line
This is the big story. Tariffs have become Lululemon’s biggest problem. The company expects an impact of about $240 million on its 2025 gross profit from higher tariffs and the removal of the de minimis exemption, with a hit of around $320 million on its operating margin in 2026.
Why is Lululemon so exposed? Because they source 40% of their manufacturing from Vietnam and 28% of their fabrics from mainland China —both countries hit with elevated tariff rates. The removal of the de minimis exemption is particularly painful since about two-thirds of Lululemon’s U.S. e-commerce orders are fulfilled through Canada, and those small shipments used to enter duty-free.
The company has raised prices modestly on select items and is negotiating with suppliers, but they’re limited in how much they can push prices up—they were already premium-priced before tariffs hit.
3. The U.S. Business Has Stalled
Here’s the uncomfortable truth: Lululemon is struggling at home. For fiscal 2025, Americas net revenue increased just 1%, which is essentially flat when you account for inflation. The company’s guidance for 2025 reflects this reality—they now expect net revenue between $10.850 billion to $11.000 billion, representing growth of 2% to 4%, way down from earlier expectations.
CEO Calvin McDonald acknowledged they’re facing headwinds from a decline in visits to U.S. stores, the impact of tariffs, and rising competition from other brands such as Vuori and Alo. The athleisure market that Lululemon dominated for years has gotten a lot more crowded.
4. China Is Absolutely on Fire
Now for the good news: Lululemon’s international business, especially China, is exploding. Net revenue from China surged 46% year-on-year, making it Lululemon’s strongest growth engine by a wide margin. Even more impressive, comparable sales in mainland China increased 24%.
This isn’t a small part of the business anymore, it’s becoming central to Lululemon’s growth story. Under its Power of Three x2 strategy, Lululemon aims to reach 200 stores in China, with nearly 154 outlets as of the first quarter of fiscal 2025. The company is also planning to add 25 to 30 stores in international markets, with the majority expected to be in China.
Beyond just opening stores, Lululemon is localizing its approach—during the Chinese New Year holiday, Lululemon launched a spring-themed campaign alongside a limited-edition collection. For fiscal 2026, the company expects revenue in the Chinese market to grow about 20 percent.
5. Going Global to Reduce U.S. Dependence
Lululemon is aggressively diversifying beyond North America. The company announced plans to enter six new international markets in 2026: Greece, Austria, Poland, Hungary, Romania, and India, an annual record. They’re using franchise partnerships to expand quickly without huge capital investment.
The international segment overall is performing strongly—international net revenue increased 22%, or 20% on a constant dollar basis in Q2. Beyond China, the Rest of World segment grew 19% (15% in constant-currency), fueled by new market entries in Italy, Turkey, and Belgium.
This geographic diversification is smart strategy. It reduces dependence on the tariff-impacted U.S. market and taps into growing international demand for premium athleisure.
The Bottom Line
Lululemon is at an inflection point. The U.S. business that built this company is stagnating under pressure from tariffs, competition, and cautious consumers. But international markets, particularly China, are delivering explosive growth that’s keeping the company afloat.
The stock has been punished severely, with tariffs expected to cost the company $380 million in 2026, up from $275 million in 2025, the near-term margin pressure is real.
This is a “show me” story now. Can China and international growth accelerate enough to offset a flatlining Americas business? That’s the question that will determine whether Lululemon is a turnaround opportunity or a value trap.
Disclaimer: All information here is for educational purposes only. This is not financial advice. Please do your own research and speak with a licensed advisor before making any investment decisions. Past performance is not indicative of future returns. How we invest may not suit your investment goals and risk management profile.