Lululemon surprised Wall Street by delivering strong earnings for the fourth quarter, but a cautious outlook for 2025 spooked investors. Despite rising revenue and beating analyst expectations, the company’s shares dropped 15% as concerns around inflation and economic uncertainty took center stage.
Cautious Shoppers, Concerned CEO
On Thursday’s earnings call, Lululemon CEO Calvin McDonald shared results of a recent customer survey. “Consumers are spending less due to economic and inflation concerns,” McDonald said, pointing to a noticeable drop in U.S. store traffic. He added, “There continues to be considerable uncertainty driven by macro and geopolitical circumstances. That being said, we remain focused on what we can control.”
While McDonald emphasized that shoppers were still reacting positively to the brand’s innovations, the broader spending slowdown is impacting both Lululemon and its retail peers.
Solid Quarter, Shaky Forecast
Lululemon’s performance for the quarter ending February 2 outpaced Wall Street expectations. The company reported:
- Earnings per share: $6.14 (vs. $5.85 expected)
- Revenue: $3.61 billion (vs. $3.57 billion expected)
That marked a rise from $3.21 billion in the same quarter last year. For fiscal year 2024, revenue hit $10.59 billion—up from $9.62 billion in 2023. However, these gains included an extra week in the 2024 fiscal year. Adjusted for that, both Q4 and full-year revenue were up 8%.
Disappointing 2025 Guidance
Despite the strong finish in 2024, Lululemon’s projections for 2025 fell short. First-quarter revenue is expected to land between $2.34 and $2.36 billion, under the $2.39 billion Wall Street predicted. The company also forecasted full-year revenue of $11.15 to $11.30 billion, just below analysts’ $11.31 billion consensus.
Earnings per share are projected at $2.53 to $2.58 for Q1 and $14.95 to $15.15 for the full year—again falling short of expectations.
Margins Under Pressure
CFO Meghan Frank explained that the company’s gross margin will dip 0.6 percentage points in 2025 due to “higher fixed costs, foreign exchange rates and U.S. tariffs on China and Mexico.” Still, Lululemon maintained healthy profitability in Q4 with a net income of $748 million, up from $669 million the previous year.
Americas Stall While Global Growth Shines
Comparable sales rose 3% for the quarter, lower than the 5.1% growth analysts predicted. In the Americas, comparable sales were flat, but internationally they surged 20%. McDonald acknowledged the U.S. sales slowdown, but noted stabilization in the second half of the year, crediting refreshed product lines.
To fuel future growth, Lululemon plans international expansion, opening stores in Italy, Denmark, Belgium, Turkey, and the Czech Republic this year.
Navigating Uncertainty
Lululemon’s ability to beat earnings expectations reflects its operational strength, but macroeconomic pressures are clouding the road ahead. As McDonald noted, the company remains “focused on what we can control,” aiming to innovate and expand in the face of adversity. For now, investors will be watching closely to see if Lululemon can regain momentum as economic conditions evolve.