Lululemon's Long-Term Growth: Sustaining Momentum or Facing a Correction?

The athleisure giant's third-quarter 2025 results paint a picture of both resilience and vulnerability. Revenue climbed 7.1% year-over-year to $2.57 billion, outpacing expectations, while earnings per share surged 16.7% to $2.59. Yet beneath these headline numbers lies a more complex story: a 2.1% decline in Americas revenue, margin compression from tariffs and markdowns, and a leadership transition on the horizon. For investors, the question is whether Lululemon can sustain its growth trajectory or if these cracks signal an impending correction.

The Geography of Growth and Decline

Lululemon's international expansion remains a bright spot. China Mainland revenue soared 46.2% to $465 million, while the "Rest of World" segment grew 19.2% to $367 million according to Q3 earnings data. These figures underscore the company's ability to tap into emerging markets, where demand for premium activewear remains robust. However, the Americas-Lululemon's historical stronghold-showed signs of fatigue. U.S. sales fell 3%, and global comparable sales rose just 2%, with the Americas segment declining 5%. Analysts attribute this to product fatigue and intensifying competition in the athleisure space.

The divergence highlights a strategic pivot: Lululemon is increasingly relying on international markets to offset domestic stagnation. While this strategy could drive long-term growth, it also exposes the company to currency fluctuations, regulatory risks, and the challenge of replicating its U.S. success in more fragmented markets.

Margins Under Pressure

Operational challenges loom large. Gross margins contracted 290 basis points year-over-year to 55.6%, driven by tariffs and higher markdowns. The removal of the U.S. "de minimis" import exemption-a policy shift that eliminates duty-free thresholds for small shipments-is expected to further erode margins by 220 basis points in 2025 according to industry analysis. These pressures are compounded by rising markdowns, as the company clears inventory in a slowing demand environment.

Full-year gross margin guidance anticipates a 270-basis-point decline, while operating margins are projected to fall by 390 basis points according to earnings call transcripts. For a brand built on premium pricing, maintaining profitability while navigating these headwinds will require disciplined cost management and innovation.

Leadership Transition and Strategic Uncertainty

The announcement that CEO Calvin McDonald will step down in January 2026 adds another layer of uncertainty. While interim co-CEOs Meghan Frank and Andre Maestrini have outlined a clear succession plan, leadership transitions often introduce volatility. Investors will be watching closely to see whether the new team can maintain focus on Lululemon's "Power of Three x2" growth strategy, which emphasizes international expansion, digital innovation, and product diversification.

Analyst Outlook: Cautious Optimism

Despite these challenges, analysts remain cautiously optimistic. The company's stock repurchase authorization of $1.6 billion signals confidence in its intrinsic value, and its valuation-16 times full-year 2025 earnings guidance-appears attractive relative to peers according to market analysis. Moreover, Lululemon's Q4 guidance, while slightly below estimates, reflects improved market expectations according to earnings call data.

However, risks persist. U.S. demand remains sluggish, and the athleisure market's susceptibility to fashion trends means Lululemon must continuously innovate to retain its customer base according to market commentary. As one analyst noted, "The company's ability to justify its premium valuation" will hinge on its capacity to balance international growth with margin preservation and brand relevance.

Conclusion: A Tug-of-War Between Potential and Peril

Lululemon's long-term growth story is far from over, but it is now a tale of two forces: the promise of international expansion and the perils of domestic stagnation. The company's strong e-commerce performance up 12.9% to $1.07 billion and strategic investments in digital tools provide a buffer against short-term headwinds. Yet without a revival in the U.S. market and a clear path to margin stabilization, the risk of a correction remains.

For now, Lululemon's momentum is intact-but investors would be wise to tread carefully. The coming quarters will test whether this is a company that can adapt to a maturing market or one that is merely delaying the inevitable.