Lululemon Athletica (LULU) delivered a stronger-than-expected fourth-quarter performance, reporting earnings of $6.14 per share, surpassing Wall Street’s estimate of $5.85 per share.
Revenue grew 13% year-over-year to $3.6 billion, in line with projections. However, the stock plunged over 15% as investors reacted to the company’s disappointing fiscal 2025 outlook.
The retailer’s management forecasted revenue growth of 5% to 7% for the year, below analyst expectations of 7.5%. Earnings per share are anticipated to range between $14.95 and $15.15, falling short of the consensus estimate of $15.46. First-quarter guidance also missed projections, further dampening investor confidence.
The retailer’s management forecasted revenue growth of 5% to 7% for the year, below analyst expectations of 7.5%. Earnings per share are anticipated to range between $14.95 and $15.15, falling short of the consensus estimate of $15.46. First-quarter guidance also missed projections, further dampening investor confidence.
Challenges in the U.S. Market
While Lululemon continues to perform well internationally, its North American business remains under pressure. North America accounts for approximately 75% of the company’s total sales, but growth in the region is expected to remain sluggish. Comparable sales were flat in the Americas during Q4, and the company projects low to mid-single-digit growth in North America for fiscal 2025.
Raymond James downgraded Lululemon to Market Perform from Outperform, citing concerns over declining U.S. traffic and increasing competition from brands like Alo Yoga and Vuori. In addition, looming tariff risks and unfavorable foreign exchange rates are expected to weigh on profitability. Gross margins are projected to decline by 60 basis points, with further pressure from increased spending on brand building and technology investments.
International Growth Provides a Silver Lining
Despite challenges in its home market, Lululemon’s international segment remains a bright spot. Sales outside North America grew by 34% in fiscal 2024, with China leading the charge with a 46% surge in Q4. The company plans to capitalize on this momentum by opening 40 to 45 new stores globally, focusing primarily on the Chinese market. Management expects international revenue to grow by 14% in fiscal 2025.
CEO Calvin McDonald emphasized the company's commitment to product innovation and brand expansion, pointing to recent successful product launches. However, analysts remain cautious about whether these efforts will be sufficient to offset the headwinds in the U.S. market.
Outlook for Investors
Lululemon’s stock now trades at a price-to-earnings ratio of 18.5x FY26 estimates, a valuation some analysts argue is not particularly low given the current growth trajectory. While the brand’s international expansion and product innovations offer long-term potential, near-term uncertainty in the U.S. market may keep the stock under pressure.
Investors will be watching closely to see how Lululemon navigates the challenging retail landscape and whether its international growth strategy can help counterbalance domestic weakness. For now, cautious sentiment prevails as the company works to regain investor confidence.
Lululemon’s stock now trades at a price-to-earnings ratio of 18.5x FY26 estimates, a valuation some analysts argue is not particularly low given the current growth trajectory. While the brand’s international expansion and product innovations offer long-term potential, near-term uncertainty in the U.S. market may keep the stock under pressure.
Investors will be watching closely to see how Lululemon navigates the challenging retail landscape and whether its international growth strategy can help counterbalance domestic weakness. For now, cautious sentiment prevails as the company works to regain investor confidence.
Considering a $1,000 investment in these companies?
Our team at Stock Investor carefully curated a list of top stocks with the potential for significant returns, suitable for beginners and seasoned investors alike who are eager to learn a trade and unearth the best stocks to buy. Though not featured in this article, these selected stocks could be game-changers in the future.For those seeking dynamic trading experiences, consider joining our Swing Trade Alerts, Option Income Alert, or our Trading Room. Take advantage of our special offer today, starting at just $1 in the first month.
Unlock the secrets of Smart Money
Explore how billionaires and institutions are influencing the market. Follow their every move with DarkOption Flow and stay updated on essential market insights. Begin your journey to informed investing today!
Education
And if you're a fan of Invest opedia, you'll appreciate what we offer at SharperTrades even more. Explore our comprehensive option trading course and technical trading course, where you can learn trading, analyze stocks, delve into chart patterns for stocks, and gain invaluable insights for making the best company investments.
Unlock Your Stock Market Edge with SharperTrades. Dive into powerful trading tools, learn a trade, and receive expert guidance. Stay up-to-date with regular market updates. Learn trading, basics of investing, and how to pick the best stocks to buy. Whether you're a beginner or seasoned investor and trader, we've got you covered. Get started for free, today!