Lululemon’s Q2 Earnings Outlook and Analyst Revisions: A Signal for Strategic Entry or Exit?

Lululemon Athletica (LULU) faces a pivotal moment as analysts revise their Q2 2025 earnings per share (EPS) forecasts downward, while geographic sales growth in key international markets offers a counterbalance to sluggish domestic performance. The stock, which has fallen nearly 50% in 2025 amid broader market skepticism about the athleisure sector, now trades at a valuation many analysts consider undervalued. However, the path forward remains clouded by macroeconomic headwinds, including rising tariffs and uncertain consumer spending trends. This article evaluates whether the current mix of bearish EPS revisions and bullish international growth signals a strategic entry point or a cautionary exit.

EPS Revisions: A Bearish Reassessment

Analysts now expect Lululemon to report Q2 2025 EPS of $2.84, a 9.8% decline year-over-year and a 0.6% downward revision over the past 30 days [1]. This shift reflects growing concerns about margin pressures from tariffs, which the company has acknowledged will reduce gross margins by approximately 110 basis points in the quarter [5]. Morgan Stanley, for instance, has cut its price target to $223 from $280, citing risks of EPS underperformance and potential guidance trimming [6]. Similarly, Needham lowered its target to $238, warning of profit-margin erosion and weak traffic trends in the Americas [5].

Yet not all analysts share this pessimism. Bank of America and UBS have maintained "Buy" or "Outperform" ratings, with median price targets around $280.49, emphasizing Lululemon’s strong brand equity, disciplined cost structure, and long-term international potential [3]. The divergence in analyst sentiment underscores a critical question: Are the EPS revisions a temporary correction in a resilient business, or a harbinger of deeper structural challenges?

Geographic Sales Growth: A Tale of Two Markets

While the U.S. and Americas markets show modest growth, international expansion continues to outperform. Revenue in the China Mainland is projected to surge 26.3% year-over-year to $396.96 million, driven by strong demand for premium activewear and strategic store openings [1]. The Rest of World segment is also expected to grow by 13.4%, reflecting robust performance in Europe and emerging markets [1]. In contrast, U.S. revenue is forecast to rise only 2.5% to $1.46 billion, constrained by macroeconomic uncertainty and competition from rivals like Nike and Lululemon’s own past growth rates [5].

This geographic divergence highlights a key strength: Lululemon’s ability to offset domestic headwinds with international momentum. CEO Calvin McDonald has emphasized the company’s "strategic resilience," including a $1.77 billion share repurchase program over the past 12 months, which analysts argue could bolster EPS growth despite near-term challenges [3].

Balancing the Outlook: Entry or Exit?

The case for a strategic entry hinges on Lululemon’s discounted valuation and long-term growth levers. At current prices, the stock trades at a price-to-earnings ratio of approximately 25x, below its five-year average of 32x [4]. Analysts like Baird and UBS argue that the company’s strong margins, brand loyalty, and international expansion potential justify a higher multiple [3]. A consensus price target of $319.98 implies a 54% upside from current levels, assuming the company can navigate near-term risks [4].

However, the case for caution is equally compelling. The U.S. consumer remains fragile, with rising interest rates and inflation potentially dampening discretionary spending. Tariffs, which are expected to persist, could further erode margins and force management to trim guidance. For risk-averse investors, the downgrade from Morgan Stanley and Needham—coupled with Lululemon’s FY 2025 guidance of 5-7% growth (well below its five-year average of 22.83%)—suggests a more defensive stance [4].

Conclusion: A Calculated Bet

Lululemon’s Q2 earnings outlook presents a nuanced picture. While EPS revisions and margin pressures warrant caution, the company’s international growth and disciplined capital allocation offer a compelling counterpoint. For investors with a medium-term horizon, the stock’s discounted valuation and strong international momentum could represent a strategic entry point—provided they are comfortable with the risks of a volatile sector. Conversely, those prioritizing stability may prefer to wait for clearer signs of U.S. demand recovery and margin stabilization.

In the end, Lululemon’s story is one of resilience and adaptation. Whether it becomes a parabolic rebound or a cautionary tale will depend on how well the company executes its international strategy and navigates the macroeconomic crosscurrents ahead.

Source:
[1] What Analyst Projections for Key Metrics Reveal About Lululemon (LULU) Q2 Earnings [https://www.nasdaq.com/articles/what-analyst-projections-key-metrics-reveal-about-lululemon-lulu-q2-earnings]
[2] Lululemon Athletica Stock (LULU) Opinions on Revised Profit Outlook [https://www.quiverquant.com/news/Lululemon+Athletica+Stock+%28LULU%29+Opinions+on+Revised+Profit+Outlook]
[3] Lululemon Stock Is Down 50% in 2025. Is This a Once-in-a-Lifetime Buying Opportunity Before the Stock Goes Parabolic? [https://www.theglobeandmail.com/investing/markets/stocks/pressreleases/34096670/lululemon-stock-is-down-50-in-2025-is-this-a-once-in-a-lifetime-buying-opportunity-before-the-stock-goes-parabolic/]
[4] Lululemon's Post-Correction Rally: A Sustainable Recovery or Fleeting Bounce? [https://www.ainvest.com/news/lululemon-post-correction-rally-sustainable-recovery-fleeting-bounce-2508/]
[5] Lululemon's steady Q1 2025 growth amid tariff challenges [https://www.investing.com/news/transcripts/earnings-call-transcript-lululemons-steady-q1-2025-growth-amid-tariff-challenges-93CH-4203463]
[6] Morgan Stanley Lowers Lululemon Price Target to $223, ... [https://www.ainvest.com/news/morgan-stanley-lowers-lululemon-price-target-223-equal-weight-rating-2508/]