A brutal rerating after a guidance reset
The reset at Lululemon is getting sharper. The stock is down 52% in 2025, sliding from a peak near $423 to roughly $175 after-hours, and the latest quarter did not stop the fall. Shares dropped more than 13% after management cut full-year guidance, even as earnings per share beat forecasts.
On the surface, Q2 numbers looked mixed. EPS came in at $3.10, ahead of the $2.87 consensus. Revenue landed at $2.53 billion, just shy of the $2.54 billion estimate. But comparable sales rose only 1%, missing the 3.7% analysts expected — a sign demand in key categories and core geographies is cooler than it was a year ago.
Guidance is where sentiment cracked. Management trimmed its full-year revenue outlook to $10.85–$11.0 billion from $11.15–$11.3 billion. The EPS range was cut to $12.77–$12.97 from $14.58–$14.78. That’s roughly a 12% reduction at the midpoint and suggests softer margins and a slower sales ramp into the back half.
Under the hood, regional results showed why investors are nervous. U.S. sales fell 4%, pointing to pressure in Lululemon’s most mature, most profitable market. China rose 17%, continuing a double-digit growth streak as the brand adds stores and leans into local assortments. The split highlights a pattern we’ve seen across retail: North America is getting promotional and choppy, while international markets, especially Asia, are still expanding.
Here are the key figures investors are watching:
- Q2 EPS: $3.10 vs. $2.87 expected (beat)
- Q2 revenue: $2.53B vs. $2.54B expected (slight miss)
- Comparable sales: +1% vs. +3.7% expected
- FY revenue guidance: $10.85–$11.0B (cut from $11.15–$11.3B)
- FY EPS guidance: $12.77–$12.97 (cut from $14.58–$14.78)
- U.S. sales: −4% year over year
- China sales: +17% year over year
The market is bracing for more volatility. Technicians point to support around $165, a level traced back to the pandemic lows. Others warn the stock could slide toward $135 if institutional selling, short pressure, and downgrades continue. None of that is guaranteed, but the tape is telling you where the anxiety is.
What’s driving the pressure — and what could change it
The story now is margin resilience in a tougher demand backdrop. Promotions have crept up across athletic apparel as consumers get pickier and competitors get louder. That narrows product margins. On top of that, higher wage costs, store labor and occupancy, and marketing tied to new store openings and product launches leave less room for earnings upside when comps slow.
Mix also matters. International growth is a bright spot but can carry different margin dynamics than North America. If more sales come from newer markets or newer categories, it can dilute margins in the short run. Currency swings add another layer of noise and can sap reported profit even when units sell through.
Competition is no longer just the global giants. Premium upstarts and niche specialists have crowded into yoga, training, and lifestyle apparel. On Running and Hoka are pulling footwear dollars. Vuori and Alo are winning closets with lounge-to-studio gear. Nike and Adidas have leaned back into wholesale while still pushing their own direct channels. Shoppers have more options, and keeping them in the Lululemon ecosystem now takes sharper pricing and bolder product stories.
That showed up in the comp number. A 1% increase implies traffic and conversion have cooled versus the post-pandemic surge. When growth slows, the math is unforgiving: either raise prices, cut costs, or push more units. Price increases are harder to pass through in a promotional market, and cutting too deep risks the brand. That leaves productivity — better assortments, tighter inventory, and fewer markdowns — as the lever to pull.
For investors trying to square the valuation with the growth outlook, the setup is complicated. The stock now trades at about 13.5 times earnings with a market cap near $24.7 billion — far below the multiples it enjoyed when comps were roaring. That has caught contrarian interest. Michael Burry, known for making concentrated bets when sentiment turns, lifted his stake and made Lululemon one of his larger retail positions.
Value alone doesn’t set a floor, though. Stocks find bottoms when estimates stop falling and the next catalyst is clear. For Lululemon, that could mean a few things: a turn in North America comps, evidence promotions are easing, signs that inventory is cleaner heading into holiday, and a reaccelerating margin path that makes the new EPS range look conservative.
International remains the best near-term growth lever. China was up 17% in the quarter, and the brand still has room to build awareness, local partnerships, and store productivity. The risk is that strength abroad is not yet large enough to offset U.S. softness in dollar terms. The opportunity is that, with the store footprint expanding overseas, even modest comp gains can add up fast.
Investors will also watch product innovation. Lululemon built its edge on fabric, fit, and durability — the things that let it avoid the deepest discounts. The challenge now is to repeat that playbook beyond core women’s bottoms and into broader training, run, and men’s. If new franchises take hold, gross margin headwinds from promotions can ease. If they don’t, the brand will be pulled deeper into the pricing battles that are weighing on the category.
From a balance sheet and cash flow angle, the company still has flexibility. That matters for marketing, store investments, and inventory control — the levers that can protect margins without damaging the brand. The question is how quickly those levers can change the narrative if the U.S. backdrop stays slow into the holidays.
What could improve sentiment from here?
- Clear evidence comps in North America are stabilizing, even at low single digits
- Fewer markdowns and better full-price sell-through as fall/winter product lands
- Continued double-digit growth in China with improving store-level profitability
- Stronger men’s and training performance to diversify away from yoga bottoms
- Expense discipline that protects SG&A without cutting core growth investments
And the risks?
- Deeper promotions across U.S. apparel as retailers chase cautious consumers
- Further estimate cuts if holiday traffic underperforms
- A mix shift toward lower-margin channels or regions that drags EPS below the new range
- FX and freight noise that hits reported profit even as units move
For now, the message from management is caution. The guidance cut pulls expectations closer to what the business is delivering today, not what it delivered during its peak run. If the next two quarters show that this is a reset rather than a slide, the multiple can stabilize. If not, the market will keep testing those support levels traders are talking about.
That leaves Lululemon in a familiar retail bind: defend the brand while chasing growth. China and other international markets are doing their part. The U.S. needs a spark — fresher franchises, tighter inventories, and less noisy promotions. Until those boxes get ticked, the stock will trade on every comp line and every hint about holiday momentum.
