Lululemon's Q4 Revenue Surges 13% but Outlook Disappoints

Lululemon Athletica Inc. reported its fourth-quarter earnings for the fiscal year 2024, with revenue reaching $3.6 billion, a 13% increase from the previous year. The company's earnings per share (EPS) were $6.14, both figures surpassing market expectations. However, the company's outlook for the upcoming year was met with disappointment, as Lululemon expressed concerns over the spending habits of American consumers, which could potentially impact its future performance.

The disappointing guidance from Lululemon has raised concerns among investors and analysts. While the company's Q4 performance was robust, the cautious outlook for the next fiscal year suggests that Lululemon may face headwinds in the near future. The primary concern is the uncertainty surrounding consumer spending in the United States, which is a significant market for the athletic apparel retailer.

Lululemon's CEO, Calvin McDonald, attributed the cautious outlook to geopolitical conflicts and high inflation, which have led consumers to reduce their spending. The company, headquartered in Vancouver, is attempting to revive its sales amidst intensifying trade wars between the United States and other countries. McDonald noted during a call with analysts that the dynamic macroeconomic environment has made consumers more cautious, significantly impacting foot traffic across the industry.

For the fiscal year 2025, Lululemon projects revenue to be between $11.15 billion and $11.3 billion, falling short of analysts' expectations. The company's guidance for the first quarter of 2025 also fell below market forecasts. McDonald is working to boost demand by expanding product categories and entering new segments such as golf, tennis, and running gear. The company is also adapting to changing fashion trends, aiming to appeal to consumers who prefer looser styles over the brand's signature tight-fitting apparel.

Lululemon's management team acknowledged that tariffs imposed by the U.S. President on China and Mexico would have a minor impact on profit margins. The company's products are primarily manufactured in Asia, including Vietnam, Cambodia, and Sri Lanka. Competitor Nike also cited macroeconomic trends in its recent forecast, warning of further declines in revenue and profitability due to geopolitical dynamics, new tariffs, volatile exchange rates, and tax regulations.

Another concern for Lululemon investors is the high level of unsold inventory. Global inventory levels increased by 9% year-over-year. Three years ago, McDonald set a long-term strategic plan to double Lululemon's sales to $12.5 billion by 2026. While the company remains committed to its 2025 target, intensified competition has slowed growth, particularly in North America.

In the fourth quarter, Lululemon's comparable sales in the Americas remained flat, while international business performed better with a 22% increase in sales. The company's growth in China was particularly strong, with revenue increasing by 39% in the fourth quarter. Lululemon has become one of the top three foreign sportswear brands in China, highlighting the region's importance as a growth engine for the company.