NEW YORK, NY - JANUARY 28: A Lululemon corporate logo hangs above their store in Soho on January 28, ... More
Athleisurewear giant Lululemon just delivered an otherwise strong fourth quarter and full-year earnings report with results exceeding expectations. Annual sales surpassed $10 billion for the first time, reaching $10.6 billion on 10% year-over-year growth. The fourth quarter ended Feb. 2 posted 13% gains to $3.6 billion and a 14% increase in income from operations to $1 billion.
Yet, the company’s tempered guidance spooked Wall Street. Lululemon shares plunged 14% after the market opened on Friday and fell a bit further to end as the worst performing S&P 500 stock for the day.
Lululemon expects first quarter 2025 revenues to range between $2.335 billion and $2.355 billion, up between 6% to 7%, and full year to reach $11.15 billion to $11.3 billion on 5% to 7% growth.
However, that may not be enough for the company to realize its ambitious “Power of Three x2” strategic plan that called for revenues to double from $6.25 billion in 2021 to $12.5 billion by 2026.
Despite assurances that the company remains focused on executing the plan, achieving its ultimate goal is slipping further away. Investment firm Jefferies projects Lululemon revenues to only advance 2% this year and reach $11.1 billion in fiscal 2026, well off the company’s goal.
Troubles Stateside
Most troubling is that in the Americas where the company generates 75% of revenues, comparative year-end revenues fell 1%, excluding the extra 53rd trading week, and were flat in the fourth quarter.
On a net revenue basis, U.S. annual sales rose 2% to $6.5 billion but comparable sales were flat, excluding the 53rd week. Canada advanced 10% to $1.4 billion – Lululemon is a Canadian company – bringing the Americas’ total up 4% to $7.9 billion.
But growth headwinds continue to mount. CEO Calvin McDonald cited a survey conducted with Ipsos across the U.S. that found, “Consumers are spending less due to increased concerns about inflation and the economy.”
American consumers’ hesitancy to splurge is resulting in “slower traffic across the industry in the U.S. in quarter one, which we are experiencing in our business as well,” he continued.
Lululemon is heavily dependent on its fleet of U.S. stores. More than half of its 720 company-owned stores are located in the States, totaling 374 stores up from 367 in 2023. It has 71 stores in Canada, same as in 2023, while it added 17 in Mexico late last year after acquiring franchise operations there, bringing the total number of stores in the Americas to 462. And 10 to 15 of the net 40 to 50 new stores planned in 2025 will open in the Americas.
The Growth Plan Off Track
In 2019, McDonald introduced the original “Power of Three” plan and then a revised version, the “Power of Three x2,” in 2022. The goals of the revised plan were to double menswear and e-commerce revenues and to quadruple international revenues relative to 2021.
As of 2024, it is nearly $2.7 billion from the $12.5 billion finish line:
- Menswear is up 66% from 2021 to $2.6 billion, but shy of the $3.1 billion goal.
- E-commerce has advanced nearly as much, reaching $4.6 billion, yet off the $5.6 billion goal.
- International sales have about doubled since 2021, yet it will need to bolster its current $2.7 billion internationally by some $1.2 billion to reach the $3.8 billion goal.
It’s not impossible for Lululemon to reach its goal, but it’s increasingly unlikely. From 2022 to 2023, revenues grew by $1.5 billion, from $8.1 billion to $9.6 billion. However, it grew sales by only $969 million in 2024 and this year’s guidance expects the company to add less than that.
Competitive Pressure Mounting
While McDonald emphasized newness and innovation as the brand’s strength going into 2025 –“Our newness is back to being on par where it’s been in the past,” he said, as he called out newness over 25 times in the earnings call – he cautioned that macroeconomic and geopolitical uncertainties, “especially in the U.S.,” were weighing expectations down.
Promising to “control what we can control”– a well-rehearsed talking point he stated five times – McDonald cautioned, “We also acknowledge the uncertainty in the retail environment as the consumer is navigating a dynamic macro environment.”
Beyond the macroeconomic uncertainties, lagging consumer confidence and growing inflation and tariff anxieties, Lululemon can’t control the pull of customers to other premium and more affordable brands, such as Gap Inc.’s Athleta and Old Navy, Target All In Motion, American Eagle’s Offline by Aerie and Fabletics, which is trying to break out of its exclusionary membership model.
At the more directly competitive premium end, Vuori is growing rapidly and tends to be priced a couple of notches below Lululemon for comparable products. Through the end of October last year, CNBC reported Vuori sales had grown by 23%.
Notably, Vuori launched in 2014 with men’s shorts, the same year Lululemon ventured into menswear, where it faced the burden of overcoming its perception as primarily a women’s performance brand.
Alo Yoga is also giving Lululemon a run for its money, offering what many consider more fashion-forward styles and like Vuori, at better prices.
Jeffferies retail analyst Randy Konik observed that in the vital U.S. market, brands like Vuori and Alo are figuratively eating Lululemon’s lunch.
“Five years ago, Alo and Vuori were ... nothing burgers, and that’s when Lululemon was growing 20% a year, whatever it is, or more. Today, you look at the numbers and you’re like, wait a second, the business is flat,” he shared with CNBC. “It’s not growing, and yet it’s coinciding with the hypergrowth of Alo and Vuori. So, in my opinion, the data proves that it is a market share issue.”
And then Nike hangs over Lululemon too. While Nike apparel sales didn’t grow last fiscal year, staying level at $13.8 billion through May 2024, and apparel revenues declined by 3% in the most recent third quarter 2025, it is and will remain a dominant competitive force.
Growing Brand Awareness Enough?
In the earnings call, McDonald didn’t speak to the market share issue, but he did address the need to grow Lululemon brand awareness, saying it remains low in “nearly every market” where it operates.
Unaided brand awareness is in the single digits in France, Germany and Japan. In Mainland China, it is in the mid-to-high teens. China was a major contributor to growth in 2024, up 38% to $1.4 billion, with comparable sales growing 27%, and it’s vital for the future. China is also slated to get the majority of international new store openings this year.
Lululemon unaided brand awareness is reported to be in the 20s in the U.K. and Australia and in the 30s in the U.S., levels that few would call low for an apparel brand. However, McDonald stressed that raising brand awareness, “particularly in the U.S.” is a “meaningful opportunity.”
Given that Lululemon already has what most would consider strong brand awareness here, will moving it up a few points really be enough to turn around flagging sales in the U.S.?
Data from location intelligence platform Placer.ai suggests that Lululemon’s built a brand perception in the U.S. that may prove more of a weakness than a strength. It reported that during the last week in December, Lululemon’s U.S. store visits doubled over the year’s weekly average.
Placer.ai analyst Bracha Arnold attributes it to the company’s End of Year sale. “One of the few occasions when the brand offers store-wide discounts,” she wrote, indicating that Lululemon may be perceived as too expensive to shop at during the rest of the year.
‘No More Juice In Lemon’
Analyst Konik gave that snarky headline to Jefferies’ latest research report on Lululemon in which he outlines the many weaknesses he sees ahead for the brand, such as worsening February mall traffic, macroeconomic uncertainties not just in the U.S. but affecting China too, an inventory buildup that risks elevating the gross margin, increased investment in marketing, technology and data analytics costs, over-reliance on new products and foreign exchange and tariff headwinds.
Konik concludes that consensus expectations are too positive, “given the rising competition.” And he added, “We see the U.S. market turning negative ahead against difficult compares. Further sales and EPS growth will be challenging.”
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