DTC Strength vs. Weak In-Store Traffic: lululemon's Balancing Act

lululemon athletica inc.’s LULU direct-to-consumer (“DTC”) channel continues to be a strong growth engine, even as the brand faces softer trends in store traffic, particularly in North America. In first-quarter fiscal 2025, DTC revenues grew 8%, representing 42% of total revenues. The company attributed this strength to its digital innovation, personalized shopping experience, and improvements in its mobile app and site functionality, which enhanced conversion and customer engagement.

In contrast, store traffic has shown signs of weakness. North America, which remains a key market, experienced slower growth due to macro pressures impacting consumer behavior and in-store conversion. While international markets like China continue to deliver double-digit growth both in-store and online, lululemon’s U.S. performance remains more dependent on how well its DTC channel can compensate for lagging footfall and localized demand softness.

Despite these headwinds, lululemon remains confident in its “Power of Three x2” strategy, which leans heavily on DTC expansion, product innovation and international growth. With new digital tools, targeted marketing and a loyal customer base, DTC is helping stabilize overall performance. While physical stores remain crucial for brand experience and community, it is increasingly clear that DTC is becoming the dominant force in lululemon’s retail model, enabling the brand to stay agile in a shifting consumer landscape.

Are LULU’s Rivals Seeing Digital Strength Over In-Store Strain?

As lululemon doubles down on its digital channels to counter soft store traffic, rivals like NIKE Inc. NKE and Ralph Lauren Corporation RL are navigating a similar shift, with DTC strength increasingly offsetting in-store challenges.

NIKE is seeing mixed results across its DTC and store channels, with store traffic slightly more resilient than digital. In fourth-quarter fiscal 2025, NIKE Stores grew 2% while NIKE Digital dropped 26%, as the brand intentionally pulled back promotions to reposition digital as a full-price destination. Despite these declines, NIKE remains committed to investing in both digital and physical DTC, aligning launches with sport moments and enhancing storytelling to reignite growth in fiscal 2026.

For Ralph Lauren, both DTC and store channels are performing well, but DTC shows stronger momentum. In fourth-quarter fiscal 2025, global DTC comps rose 6%, led by robust digital growth and full-price conversion. While traffic trends softened in North America, international stores delivered higher productivity and improved traffic. Looking ahead, Ralph Lauren plans to enhance its DTC experience with elevated retail presentations, digital innovation and personalized customer engagement to drive premium brand growth.

The Zacks Rundown for LULU

lululemon’s shares have lost 46% year to date compared with the industry’s decline of 25.7%.

From a valuation standpoint, LULU trades at a forward price-to-earnings ratio of 13.75X, higher than the industry’s 11.29X.

The Zacks Consensus Estimate for lululemon’s fiscal 2025 earnings implies a year-over-year decline of 1.5%, whereas the consensus mark for fiscal 2026 suggests growth of 7.5%. Earnings estimates for fiscal 2025 and 2026 have been southbound in the past seven days.

LULU currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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