Lululemon’s Undervalued Global Expansion Play: Unlocking Margin and Revenue Upside Through International Growth

In the face of a sluggish U.S. market and rising tariffs, lululemon Athletica Inc. (LULU) has emerged as a case study in strategic resilience. While the company recently cut its 2025 revenue forecasts due to domestic headwinds, its international operations continue to outperform expectations, offering a compelling case for long-term investors. The key to unlocking lululemon’s future margin and revenue upside lies not in its home market but in its global expansion—a play that remains undervalued by current market sentiment.

International Growth: A Engine of Resilience

Lululemon’s international revenue has surged at a pace that dwarfs its domestic performance. For fiscal 2025 (ending February 2025), international net revenue jumped 34% year-over-year to $10.6 billion, with constant dollar growth at 36% [1]. This momentum accelerated in Q4 2024, where international sales surged 38% compared to the prior year [1]. Even more striking, international comparable sales rose 22% in 2024, driven by robust demand in China, where store count surpassed Canada’s, and the Rest of World segment grew 17% in constant currency during Q1 2025 [6].

These figures underscore a strategic pivot that has insulated lululemon from U.S. market volatility. While North American revenue grew a modest 2% in Q1 2025, international markets accounted for over 50% of total revenue in the same period [1]. The company’s 2025 outlook, despite downward revisions, still projects international revenue between $11.15 billion and $11.3 billion, reflecting confidence in its global footprint [1].

Strategic Expansion: Diversification as a Hedge

Lululemon’s expansion strategy is both aggressive and calculated. The company plans to open 40–45 new stores in 2025, with a focus on China, Europe, and the Asia-Pacific region [4]. In China alone, lululemon’s revenue grew 22% in constant currency during Q1 2025, driven by a blend of store openings and digital innovation [6]. Beyond China, the brand is testing franchise models in markets like Italy, Denmark, and Turkey, signaling a shift toward scalable, low-capital growth [4].

This diversification is critical. By reducing reliance on the U.S.—where Q3 2025 comparable sales fell 2%—lululemon is hedging against macroeconomic risks such as inflation and shifting consumer preferences [5]. The company’s store optimization strategy, including expanding square footage by 10% in 2025, further enhances its ability to capture premium pricing in high-growth markets [4].

Challenges and the Path Forward

No expansion is without friction. Tariffs, which lululemon estimates will reduce 2025 profits by $240 million [2], and U.S. market saturation pose near-term risks. The company’s Q3 2025 gross margin fell to 58.5% from 60.2% in the prior year, directly attributed to tariff pressures [6]. Additionally, the recent 12% drop in share price following earnings reports reflects investor skepticism about margin compression [6].

Yet these challenges are temporary. lululemon’s balance sheet remains robust, with $1.2 billion in cash reserves and consistent returns on invested capital [1]. The company’s focus on product innovation—such as its new “Urban Yoga” line—and immersive in-store experiences (e.g., “Wellness” workshops) position it to differentiate in crowded international markets [5].

Conclusion: A Long-Term Play on Global Demand

While lululemon’s near-term forecasts have been revised downward, its international expansion remains a powerful catalyst. The company’s ability to grow revenue in high-margin markets, coupled with its disciplined capital allocation, suggests that current valuations understate its long-term potential. For investors seeking exposure to a brand that is redefining athletic apparel through global innovation, lululemon’s international play offers a compelling upside.

Source:
[1] lululemon athletica inc. Announces Fourth Quarter and Full [https://corporate.lululemon.com/media/press-releases/2025/03-27-2025-200544345]
[2] Lululemon (LULU) Q2 2025 earnings [https://www.cnbc.com/2025/09/04/lululemon-lulu-q2-2025-earnings.html]
[4] Lululemon leans on newness to lure reluctant US customers [https://www.fashiondive.com/news/lululemon-us-customers-expand-store-count/743948/]
[5] How Athletic Retailers are Weathering the Storm in Q2 2025. [https://www.placer.ai/anchor/articles/how-athletic-retailers-are-weathering-the-storm-in-q2-2025]
[6] Lululemon Athletica (LULU) Earnings Dates, Call Summary, and Guidance [https://www.tipranks.com/stocks/lulu/earnings]