Is lululemon's Earnings Outlook Still Aligned With Its Growth Story?

lululemon athletica inc. LULU has long been synonymous with premium athleisure, but its latest earnings call shows a brand recalibrating its growth story. In second-quarter fiscal 2025, EPS of $3.10 topped estimates, but revenues of $2.53 billion fell slightly short. The company’s top line improved year over year, while the bottom line declined, driven by soft margins. Although revenues improved year over year, the company’s performance in the Americas, predominantly the U.S. business, reflected soft trends.

LULU lowered its revenue and EPS guidance for fiscal 2025 due to the expectations of increased tariff-related costs, retaliatory tariff measures and the removal of the de minimis exemption. Management trimmed the fiscal 2025 guidance to revenues of $10.85-$11 billion and EPS of $12.77-$12.97. The EPS estimate suggests a decline from $14.64 in fiscal 2024. The downward revision reflects both U.S. softness and mounting tariff costs, raising questions about whether lululemon’s high-growth trajectory remains intact.

The core challenge lies in the product mix. While performance categories like yoga, run and train continue to gain share, casual and lounge staples such as Scuba and Softstreme have become stale. Management acknowledged letting product cycles run too long, leading to weaker engagement from high-value customers. To fix this, lululemon is boosting new style penetration from 23% to 35% by spring 2026 and fast-tracking innovation.

These changes, coupled with fresh launches like Daydrift and BeCalm, are designed to reignite excitement. However, most of the turnaround benefits will not fully materialize until fiscal 2026, leaving near-term results vulnerable.

Offsetting U.S. weakness, international growth remains a bright spot. Revenues in China rose 25% in the fiscal second quarter, and that for the Rest of the World climbed 19%, supported by store expansion in Europe and early entry into markets like India. Nonetheless, cost pressures loom large. The removal of the U.S. de minimis exemption and higher tariffs are expected to reduce the gross margin by 300 basis points in fiscal 2025, representing a $240-million hit. While lululemon’s brand loyalty, innovation pipeline and global runway underpin its long-term story, the earnings outlook suggests a period of slower growth and tighter margins before momentum can fully reset.

LULU’s Competition Heats Up: Are RL & GES Gaining Ground?

As lululemon navigates slowing U.S. momentum and rising costs, rivals Ralph Lauren Corporation RL and Guess?, Inc. GES are sharpening their outlooks, raising the question of whether traditional fashion players are starting to gain ground in the athleisure and lifestyle space.

Ralph Lauren delivered a strong first-quarter fiscal 2026, with an EPS of $3.77 and revenues rising 14% year over year to $1.72 billion. Strength was broad-based across Asia, Europe and North America, supported by double-digit comps and robust digital growth. Management raised the full-year guidance to low to mid-single-digit revenue growth, but remains cautious on the back half due to tariff-related pressures and macro uncertainty. However, brand momentum and pricing power underpin a confident long-term outlook.

Guess posted second-quarter fiscal 2026 revenues of $700 million, down 2% year over year, with EPS of 72 cents missing expectations. North America remained soft, while Europe showed resilience and Asia delivered mid-single-digit growth. Management lowered its fiscal 2026 revenue outlook to a low-single-digit decline, citing ongoing U.S. weakness and tariff-related pressures. However, Guess is leaning on cost controls, digital expansion and licensing strength to support margins, though near-term growth visibility remains limited.

The Zacks Rundown for LULU

lululemon’s shares have lost 56.7% year to date compared with the industry’s decline of 27.9%.

From a valuation standpoint, LULU trades at a forward price-to-earnings ratio of 10.89X, lower than the industry’s 11.43X.

The Zacks Consensus Estimate for lululemon’s fiscal 2025 earnings implies a year-over-year decline of 8.4%, whereas the consensus mark for fiscal 2026 suggests growth of 3.2%. Earnings estimates for fiscal 2025 and 2026 have been southbound in the past seven days.

LULU currently carries a Zacks Rank #5 (Strong 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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