lululemon's Inventory Play: Streamlining or Straining Growth?

lululemon athletica inc.’s LULU inventory strategy in first-quarter 2025 reflects a balancing act between sustaining product innovation and managing near-term macro pressures. Unit inventory rose 16% year over year, while dollar inventory climbed 23%, driven by higher average unit costs from tariffs and foreign exchange impacts. Management views this elevated stock as intentional, supporting new product introductions like the No Line Align and Daydrift trousers, which have seen strong guest response. The company is leaning into innovation and replenishing top sellers quickly, even if it means holding more inventory in the short term, to protect full-price selling and market share gains.

However, this inventory build is not without risks. lululemon flagged U.S. traffic softness and a more cautious consumer as factors prompting a slightly higher markdown outlook for the second half of fiscal 2025. While first-quarter markdowns declined 10 basis points (bps) versus last year, management has layered in an additional 10-20 bps for fiscal 2025 to account for potential promotional pressure, especially in the competitive U.S. market. 

In the long run, lululemon’s inventory play is as much about positioning for growth as it is about managing the current headwinds. With 40% of purchases in core products that can be flexed as needed, the brand retains the agility to adjust buys based on demand. The focus remains on fueling its five key activities — yoga, running, training, golf and tennis — through deeper innovation and full-price sales discipline. If consumer demand holds up, the company’s current inventory levels could enable stronger back-half sales and margin recovery; if not, the risk is that today’s strategic build could morph into tomorrow’s drag on profitability.

LULU’s Rivals: NIKE & Under Armour Streamline Inventories

In the competitive athletic apparel and footwear market, NIKE Inc. NKE and Under Armour UAA are both streamlining inventories, though from different starting points and with distinct priorities.

NIKE is leaning heavily into inventory discipline as part of its broader marketplace reset. In fourth-quarter fiscal 2025, inventories fell 13% year over year, reflecting tighter buying, faster product flow, and a cleaner marketplace after prior excesses. The company has been strategically reducing lower-margin SKUs while prioritizing performance categories like running, training, and Jordan, where consumer demand remains robust. This streamlined approach supports higher full-price sell-throughs and margin stability, but it also means NIKE must balance leaner stock levels with the ability to meet surges in demand, especially as it repositions NIKE Digital within an integrated channel strategy.

Under Armour is also tightening its inventory position, but from a different starting point. After dealing with elevated stock levels that pressured margins in prior quarters, the brand has been aggressively clearing excess through planned promotions and more targeted assortments. The company’s inventory is now more closely aligned with demand trends, particularly in performance and training gear, helping to support cleaner full-price selling moving forward.

The Zacks Rundown for LULU

lululemon’s shares have plunged 49.5% year to date compared with the industry’s decline of 32.2%.

From a valuation standpoint, LULU trades at a forward price-to-earnings ratio of 12.87X, higher than the industry’s 10.33X.

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 stable 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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