Lululemon Athletica Inc. shares fall over 20% pre-market after company cuts FY profit, revenue forecast

Lululemon Athletica Inc. shares fall over 20% pre-market after company cuts FY profit, revenue forecast

Lululemon Athletica Inc. (LULU) reported its financial results for the second quarter of fiscal year 2025, revealing an earnings per share (EPS) of $3.10, which exceeded analyst forecasts of $2.87. However, the company's revenue of $2.53 billion slightly missed expectations of $2.54 billion. Despite the EPS beat, Lululemon's stock experienced a significant drop in premarket trading, declining by 17.23% to $170.59. This decline contributed to a substantial year-to-date drop of 46%, though the company maintained impressive gross margins of 59.1% and a healthy current ratio of 2.27 [1].

Key Takeaways
Lululemon’s Q2 EPS of $3.10 exceeded expectations by 8.01%. Revenue fell just short of forecasts, coming in at $2.53 billion. Stock price fell sharply by 17.23% in premarket trading. The company continues to expand globally, with 14 new stores in Q2. Lululemon’s digital revenue reached $1 billion, accounting for 39% of total revenue.

Company Performance
Lululemon Athletica Inc. demonstrated solid performance in Q2 2025 with a 7% increase in total net revenue, reaching $2.5 billion. The company continues to expand its global presence, adding 14 new stores and increasing its square footage by 14%. Digital sales remain a significant contributor, accounting for 39% of the total revenue. However, the U.S. market posed challenges as consumer spending on apparel declined, impacting overall sales growth.

Financial Highlights
- Revenue: $2.5 billion, up 7% year-over-year.
- Earnings per share: $3.10, exceeding forecasts and previous periods.
- Gross profit: $1.48 billion, representing 58.5% of net revenue.
- Net income: $371 million.

Earnings vs. Forecast
Lululemon reported an EPS of $3.10, beating the forecast of $2.87 by 8.01%. This marks a positive surprise for investors, reflecting effective cost management and strong brand loyalty. However, the revenue of $2.53 billion missed analyst forecasts by a narrow margin, resulting in a revenue surprise of -0.39%.

Market Reaction
Despite the EPS beat, Lululemon’s stock dropped by 17.23% in premarket trading to $170.59. The decline reflects investor concerns over the revenue miss and broader market challenges, including a declining U.S. premium athletic wear market and increased competition in the athleisure segment.



Outlook & Guidance
Lululemon has provided full-year 2025 revenue guidance of $10.85 billion to $11 billion, indicating a growth range of 2-4%. The company also projected full-year EPS to be between $12.77 and $12.97. Looking ahead, Lululemon expects a decline in U.S. revenue by 1-2%, while anticipating significant growth in China and other international markets.

Executive Commentary
CEO Calvin McDonald emphasized the company’s commitment to innovation and customer satisfaction, stating, "We know we can do better for our guests, especially in these categories, and that’s the focus." CFO Meghan Frank addressed cost challenges, noting, "We are taking actions in both the near-term and long-term to mitigate the increased tariff costs."

Risks and Challenges
- Declining U.S. market for premium athletic wear.
- Increasing competition in the athleisure market.
- Consumer spending shifts affecting apparel purchases.
- Tariff impacts on cost structures.
- Potential supply chain disruptions.

References:
[1] https://www.investing.com/news/transcripts/earnings-call-transcript-lululemon-athletica-q2-2025-beats-eps-forecast-stock-drops-93CH-4226090