Lululemon's growth engine slows amid US weakness and tariff pressures

Premium athleisure brand hits unexpected turbulence

​Lululemon Athletica, the high-end athletic apparel maker long hailed for its consistent double-digit growth and cult-like brand following, has hit a rough patch. The company's first quarter (Q1) earnings for fiscal 2025 showed slowing momentum, especially in its core North American market, spooking investors and sending shares tumbling more than 20% following a reduced full-year outlook.

​This represents a significant shift for a company that has been a darling of the retail sector, consistently delivering strong growth and premium margins through its focus on high-quality yoga and athletic wear targeted at affluent consumers.

​The dramatic market reaction reflects investor concerns that Lululemon may be facing more than just temporary headwinds, with structural challenges potentially undermining its premium positioning and growth trajectory.

​The company's stumble comes at a time when many retailers are grappling with changing consumer behaviour, US tariffs, and an increasingly competitive athleisure market that has attracted numerous new entrants.

​Q1 results reveal underlying weakness

​In Q1, Lululemon posted revenues of $2.4 billion, representing a 7% year-over-year (YoY) increase (8% on a constant-currency basis). Earnings per share (EPS) came in at $2.60, slightly beating analysts’ expectations and up from $2.54 the previous year. However, a closer look reveals underlying softness. Comparable sales grew just 1% globally, dragged down by a 2% decline in the Americas.

​International markets offered some respite, with an impressive 19% jump in overall international sales (20% constant-currency), reinforcing the company’s efforts to expand its global footprint.

​The company’s gross margin improved to 58.3%, up 60 basis points YoY. But operating margin declined to 18.5%, reflecting rising costs, including those tied to tariffs and increased inventory levels. Inventory rose sharply by 23% to $1.7 billion, raising concerns about overstocking and potential markdown risks in the quarters ahead.

​Tariff pressures and consumer behaviour challenges

​CEO Calvin McDonald acknowledged the drag from US consumers, describing their purchasing behaviour as “very intentional.” The company also faces fresh headwinds from US tariffs - 30% on Chinese imports and 10% on other Asian goods - expected to eat into profit margins. Lululemon plans to offset the impact through supplier renegotiations, increased supply chain efficiency, and modest price hikes, but the near-term pressure is already apparent.

​Reduced guidance reflects cautious outlook

​For the second quarter (Q2), Lululemon expects revenues of $2.535–$2.560 billion, which would mark a 7-8% rise. However, the company trimmed its full-year forecast, now guiding for sales between $11.15-$11.30 billion (5-7% growth) and eEPS of $14.58-14.78, down from the earlier $14.95-$15.15 projection. The muted outlook spurred a swift reaction on Wall Street. Several analysts lowered their price targets, though few issued outright downgrades.

​Analyst sentiment remains mixed but supportive

​According to LSEG Data & Analytics, 8 analysts have a 'strong buy' recommendation for Lululemon, 9 a 'buy', 15 a 'hold', 2 a 'sell' and 1 a 'strong sell' (as of 19/06/2025).

Lululemon LSEG Data & Analytics chart

​Lululemon has a TipRanks Smart Score of '7 Neutral' and is rated as a 'buy' with 15 'buy', 12 'hold' and 2 'sell' recommendations. 

​This analyst distribution suggests that while confidence has been shaken, most professionals still see value in the company's long-term prospects despite current challenges. The recent increase of 'hold' ratings reflects a wait-and-see approach by many analysts.

​The forward P/E ratio of approximately 18.1 and a revised EPS of about $14.7 suggest the market is recalibrating expectations after years of robust growth, potentially creating opportunities for investors willing to accept near-term volatility.

​The mixed sentiment reflects the tension between Lululemon's strong brand equity and execution track record versus the very real challenges it faces in the current operating environment.

​Technical analysis suggests further downside risk

​The Lululemon share price, down 40% year-to-date, is at a critical juncture as it rapidly approaches its August 2024 low at $226.01. Were it to give way, a slip towards the $200 region may well be on the cards, with perhaps even the October 2018 peak at $164.79 representing a possible downside target.

​Lululemon monthly candlestick chart 

​The April 2025 low at $234.84 is expected to act as resistance if revisited. As long as it isn't overcome, immediate downside pressure is likely to persist.

​Strategic initiatives and balance sheet strength

​Still, there are bright spots. Lululemon added three new stores in Q1, bringing its global total to 770, and continues to roll out new product lines like its fashion-forward "Glow Up" collection. Strategic marketing, including events in Beijing and Las Vegas, reinforces brand vitality even as demand cools domestically.

​The balance sheet remains strong, with $1.3 billion in cash and approximately $393 million in unused credit capacity. The company also repurchased $430 million worth of shares during the quarter, demonstrating management's confidence in long-term prospects.

​International expansion continues to show promise, with strong growth rates suggesting that Lululemon's brand appeal translates well across different markets and consumer segments outside North America.

​The company's ability to maintain innovation in product development and marketing execution provides hope that current challenges may prove temporary rather than indicative of fundamental brand weakness.

​Investment considerations for Lululemon shares

​For investors considering Lululemon amid its current challenges, several factors merit careful consideration given the company's changed circumstances and market dynamics.

1. ​Research Lululemon's competitive positioning, international expansion progress, and management's strategy for addressing current headwinds.
2. ​Consider how consumer spending trends, tariff policies, and competitive dynamics in athleisure might affect the company's recovery prospects.
3. ​Open an account with IG by visiting our website and completing the application process.
4. ​Search for 'Lululemon Athletica' or its ticker 'LULU' on our trading platform or app.
5. ​Implement appropriate risk management given the stock's recent volatility and uncertain near-term outlook.

​Spread betting and CFD trading provide flexible approaches for trading Lululemon, allowing positions on both rising and falling prices as the company navigates its current challenges.

​For longer-term investors who believe in the brand's resilience and international growth potential, share dealing offers direct ownership at what may prove to be attractive entry levels, though patience will likely be required.

​Investor sentiment has turned mixed. Some argue the stock's steep pullback reflects overreaction to temporary headwinds. Others are more cautious, citing bloated inventories, the drag from US retail softness, and ongoing margin pressures as reasons to stay on the sidelines.

​In summary, while Lululemon remains a formidable brand with a strong international growth engine, the road ahead looks bumpier than in recent years. Margin compression from tariffs, cautious US consumers, and elevated inventories all present real challenges.

​Investors will be watching closely in the second half of the year to see if the company can turn the tide - or if this marks the beginning of a longer-term deceleration for the yoga-wear giant.​​

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