LULU · Q2 2025 Earnings

Bearish

Lululemon Athletica

Reported September 4, 2025

30-second summary

Lululemon cut FY2025 EPS guidance to $12.77–$12.97 from $14.58–$14.78 — a ~$1.80 midpoint reduction — and pulled FY revenue growth to 2–4% from 5–7%, with FY operating margin now guided down ~390bps versus the prior -160bps. Q2 itself was a split print: revenue $2.525B (+6.5% YoY) missed the prior $2.535–2.560B guide, but GAAP EPS $3.10 beat the $2.85–$2.90 range by $0.20 on better gross margin (58.5%) and buybacks. The CEO directly accepted product-strategy blame ("we have let our product life cycles run too long…in lounge and social") and deferred recovery to 2026, while quantifying $320M of 2026 tariff drag with only ~$160M of identified offsets — this is a transition year that just got longer.

Headline numbers

EPS

Q2 FY2025

$3.10

Revenue

Q2 FY2025

$2.52B

+6.5% YoY

Gross margin

Q2 FY2025

58.5%

Operating margin

Q2 FY2025

20.7%

Key financials

Q2 FY2025

Metric	Q2 FY2025	YoY	Q1 FY2025	QoQ
Revenue	$2.52B	+6.5%	$2.37B	+6.5%
EPS	$3.10	—	$2.60	+19.2%
Gross margin	58.5%	—	58.3%	+20bps
Operating margin	20.7%	—	18.5%	+220bps

Guidance

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q2 FY2025	$2.535B to $2.560B	$2.525B	-$10M below guide	Beat
Revenue growth (YoY %)	Q2 FY2025	7% to 8%	6.5%	-50bps below guide low	Missed
EPS	Q2 FY2025	$2.85 to $2.90	$3.10	+$0.20 above guide high	Beat

New guidance

Metric	Period	Guide	YoY
Tariffs and de minimis impact on gross margin	FY2025	220 basis points or approximately $240 million	—
De minimis exemption removal impact	FY2025	approximately 170 basis points	—

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Revenue	FY2025	$11.150B to $11.300B	$10.850B to $11.000B	-$300M to -$300M midpoint cut	Lowered
Revenue growth (YoY %)	FY2025	5% to 7%	2% to 4%	-300bps	Lowered
Revenue growth excluding 53rd week	FY2025	7% to 8%	4% to 6%	-300bps	Lowered
EPS	FY2025	$14.58 to $14.78	$12.77 to $12.97	-$1.80 to -$1.81	Lowered
Gross margin decline	FY2025	approximately 110 basis points	approximately 300 basis points	+190bps deterioration	Lowered
Operating margin decline	FY2025	approximately 160 basis points	approximately 390 basis points	+230bps deterioration	Lowered
SG&A deleverage	FY2025	approximately 50 basis points	approximately 80 to 90 basis points	+30 to +40bps	Lowered

Platform metrics

Q2 FY2025

Segment	Q2 FY2025
Comparable Sales Growth	1%
Americas Comparable Sales Growth	-3% (constant currency)
International Comparable Sales Growth	13% (constant currency)
Company-operated Store Count	784
Net New Stores (Quarter)	14
Total Gross Square Feet	3,511 thousand
Cash and Cash Equivalents	$1,155.8M

Other KPIs

Q2 FY2025

Segment	Q2 FY2025
Share Repurchases	1.1 million shares for $278.5M

Management tone

Hyper-growth narrative (pre-2025) → Tariffs as manageable headwind (Q1 2025) → Product-strategy accountability and 2026 reset (Q2 2025)

Three quarters ago Lululemon was still narrating itself as a margin-expansion story with China as a structural growth engine. Last quarter the frame became defensive — "operating from a position of strength," tariffs as the new dominant variable, but with FY revenue held. This quarter the CEO did something he has not done before: he publicly accepted that the core product engine has failed. "I now believe we have let our product life cycles run too long within many of our core categories, particularly in lounge and social. We have become too predictable within our casual offerings and missed opportunities to create new trends." Reading that next to Q1's "we are gaining share in premium activewear" is jarring. The bull case is no longer that demand returns; it is that a new merchandising playbook lands in Spring 2026.

Last quarter tariffs were a sub-headline; this quarter they are a quantified $240M FY gross-margin hit, with de minimis removal alone accounting for 170bps of the 220bps total. CFO Megan Frank: "we now expect a 220 basis point or approximately 240 million mitigated impact on gross margin for the year." The word "mitigated" is doing heavy lifting — this is what's left after the mitigation work. And the 2026 framing got worse: $320M gross tariff drag, ~$160M of identified offsets (split roughly half-and-half between expense actions and pricing/vendor negotiations). Half of next year's tariff bill is currently unaddressed.

The most consequential tonal shift is the explicit deferral of recovery. McDonald: "the most meaningful impact of our learnings and insights into 2026 and beyond." Last quarter management argued H2 mitigation would land the FY margin guide; this quarter that bridge collapsed by another 230bps, and the new bridge is calendar-2026 product. That is a 12-to-18-month wait for the thesis to validate, during which margins compress further.

One restraint deserves note: McDonald said, "I am determined that we will not make any near-term decisions that could hurt or damage our brand positioning over the long term." Translated: no aggressive markdowns to clear casual product, no broad price hikes to fully pass through tariffs. The 390bps op-margin compression is partly a deliberate choice to protect brand premium — defensible long-term, painful short-term.

Recurring themes management leaned on this quarter:

Product assortment reset and newness acceleration (23% to 35% new styles by spring)U.S. market underperformance and loss of pricing power in lounge/social categoriesTariff and de minimis structural margin headwinds (220 bps impact)International strength masking domestic weakness (China +24-25% growth offsetting U.S. flat/negative)2026 as inflection point for product-driven recovery rather than 2025Strategic investments in design talent and technology (new Chief AI Officer) despite near-term margin pressure

Risks management surfaced:

Elevated tariff rates and removal of de minimis exemption (primary near-term driver of margin compression)Continued macro headwinds in China Tier 1 cities impacting growth rateIncreased competitive intensity in premium athletic wear with 'many players in the market' diluting Lululemon's differentiationConsumer spending pullback on apparel and selectivity in purchase decisions reducing category growthExecution risk on product pipeline and go-to-market agility in 2H2025 before 2026 benefits materialize

Q&A highlights

Janine Stichter · CTIG

How will product department changes impact the back half of 2024? What percentage of assortment is casual, and what gives confidence that casual is the problem to fix?

Back half has more new styles than first half (Loungeful, Big Cozy launching). Casual represents 40% of mix vs 60% performance. New styles (Daydrift, Be Calm) performing well, but core franchises (Scuba, Softstream, Dance Studio) showing fatigue with high-value consumers. Spring 2026 pipeline represents shift from 23% to 35% newness.

Casual: 40% of mix, Performance: 60%New styles represent 23% to 35% of merchandising mixTwo new items launching in back half: Loungeful and Big CozyCore casual franchises showing fatigue with high-value, long-term consumers

Paul Lejeu · Citi

What is the gross pressure from reciprocal tariffs on annualized basis? How much is pricing being relied upon as mitigation? How can pricing increases be reconciled with higher markdown guidance?

2026 tariff impact estimated at $320 million. About half of impact offset (roughly $160 million): half from expense actions, half from pricing and vendor negotiations, with pricing being larger component. Markdown pressure is separate issue related to seasonal inventory excess, not overlap with pricing strategy. Pricing actions isolated to U.S. at this point.

$320 million tariff impact in 2026Approximately $160 million in offsets expectedHalf of offsets from expense actions, half from pricing/vendor negotiationsPricing component larger than vendor negotiation piece

Matthew Boss · JP Morgan

What traffic and KPI trends informed revised 2024 guidance? How did trends progress through Q2 and Q3 to date?

May was strongest month, July weakest. Traffic slowed in both store and e-commerce throughout quarter. Conversion relatively consistent; AOV flat to slightly worse. U.S. Q3 to date in line with annual guide. Canada lower than annual guide. China on higher end of expectations; Q4 China expected to be lower due to Chinese New Year shift from Q4 to Q1.

May strongest month, July weakestStore and e-commerce traffic decelerated through Q2Conversion consistent, AOV flat to slightly worseU.S. Q3 to date in line with annual guidance

Brooke Roach · Goldman Sachs

What is the magnitude of downtrending core franchises within casual 40% of business? What timeline for Spring 2026 innovation to scale and offset pressure from casual declines?

Merchandising mix shift from 23% to 35% newness for Spring 2026 will be distributed across opportunity areas (social, lounge) plus new items (Daydrift, Be Calm, Big Cozy, Loungeful). Mix should offset core franchise pressure through test-and-learn approach and improved agility to chase successful items quicker. Expects new assortment mix to give guests choice and positively respond to new styles.

23% to 35% shift in new styles for Spring 2026New items planned: Big Cozy, LoungefulSuccessful new franchises: Daydrift, Be CalmImproved agility enables faster response to successful items

Adrienne Yee · Barclays

What inventory management strategies exist between now and 2026 to chase winners? What portion of U.S. e-commerce relied on de minimis exemption?

New speed/agility processes in place to chase successful items through second half; upfront vendor fabric preparation eliminates up to two months from chase process. U.S. e-commerce: approximately two-thirds of orders fulfilled through Canada, mostly under $800, qualifying for de minimis exemption (representing meaningful impact). DC network and inventory placement optimization part of tariff mitigation strategy.

Two-thirds of U.S. e-commerce orders fulfilled through CanadaMost orders under $800, qualifying for de minimis exemptionDe minimis exemption represents 'meaningful impact' to companyUp to two months eliminated from chase process through vendor collaboration

Answers to last quarter's watch list

Americas comp trajectory — Q2 Americas comps -3% constant currency, worse than Q1's -2% and worse than the "similar to Q1" framing. Q3-to-date is in line with the new FY Americas guide (flat to -1%), with the U.S. specifically down 1–2%. The bear case played out.

Resolved negatively

Realized Q2 gross margin vs the -200bps guide — Q2 gross margin came in at 58.5% versus 58.3% in Q1; management's prior framing was a ~200bps Q2 YoY decline and the print held up better than feared. But the H2 mitigation thesis still broke: Q3 GM is now guided down ~410bps YoY and FY GM down ~300bps versus the prior ~110bps. Better Q2 print, worse H2 math.

Resolved negatively

Pricing execution — Pricing actions are happening but are isolated to the U.S. and described as a meaningful but partial offset to the $320M 2026 tariff drag (roughly half of the ~$160M total offset, so ~$80M from pricing). Management explicitly refused broad-based price moves to protect brand positioning.

Resolved negatively

China growth rate — China Mainland +24% in Q2, holding above 20% as required by the prior watch threshold. But the FY guide came down to 20–25% from 25–30%, and Q4 is flagged lower on Chinese New Year shift. International strength is holding, but the rate is decelerating.

Continue monitoring

Inventory unit growth deceleration — Detail not disclosed at the unit level in the press release; management's commentary characterized excess seasonal inventory as the driver of the +50bps FY markdown guide (and +80bps Q3 markdown guide), implying unit growth did not decelerate enough.

Resolved negatively

What to watch into next quarter

Q3 gross margin versus the -410bps YoY guide — this is the worst single-quarter margin compression Lululemon has guided to. A miss versus -410bps means the tariff/de minimis math is still not calibrated and 2026 offsets are likely undersized.

U.S. comp progression into holiday — Americas comps deteriorated from -2% to -3% constant currency. A Q3 print at -4% or worse would invalidate the "stabilizing in line with annual guide" framing management offered on the call.

2026 tariff offset specificity — management identified ~$160M of offsets against $320M of gross drag; watch the Q3 print for incremental detail on the unaddressed half, particularly whether the pricing component grows or vendor negotiations land.

Spring 2026 newness reads — the entire recovery thesis rests on the 23%→35% newness shift. Watch for early Q4 commentary on Spring 2026 buy-side reception and any pulled-forward indicators (sell-through on Loungeful/Big Cozy launching in H2).

China Mainland holding above 20% — Q4 is pre-flagged lower on the Chinese New Year shift. If reported Q3 China comes in below the 20% floor of the new FY guide, the international cushion thins materially.

Capital allocation — $278.5M of buybacks in Q2 with the FY EPS guide getting cut $1.80; watch whether the buyback pace sustains or pulls back as the H2 cash needs around tariff inventory clarify.

Sources

Lululemon Athletica Q2 FY2025 Press Release (August 3, 2025 quarter-end), SEC EDGAR: https://www.sec.gov/Archives/edgar/data/1397187/000139718725000038/lulu-20250803xex991.htm
Lululemon Q2 FY2025 earnings conference call — prepared remarks and Q&A, September 2025

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