China's Strength, Strain in the US: Can lululemon Keep Pace?

lululemon athletica inc. LULU is experiencing rapid growth in China, which serves as a cornerstone of its international expansion strategy. The company continues to strengthen its presence in the region by opening new stores and elevating brand visibility through targeted marketing and community-based initiatives.

Under its Power of Three x2 strategy, lululemon aims to reach 200 stores in China. Beyond store expansion, LULU is focused on deepening guest engagement, alongside leveraging traditional media assets and brand ambassadors to support product launches and brand equity. Digitally, the brand continues to enhance its presence by tapping into platforms like Tmall, WeChat and Douyin to expand reach and broaden consumer engagement.

In China, which is the company’s second largest market, revenues rose 25% or 24% in constant currency in the second quarter of fiscal 2025. LULU introduced five stores in the China Mainland in the same quarter, continuing its brand awareness through various activations and experiences. Comparable sales (comps) in Mainland China rose 16%, showing resilience despite limited signs of macroeconomic headwinds in Tier 1 cities.

However, the company is facing challenges in its U.S. business due to the current operating landscape and heavy reliance on its few core franchises within the lounge and social categories, resulting in an imbalance between existing and new styles across casual offerings. Consequently, guest response has softened compared with the prior periods. Still, the company is focused on reaccelerating growth in its U.S. business by creating agility in its go-to-market process to test new styles and grab guest demand, elevating its product assortment, brand-building initiatives and other efforts to aid growth in the business. This might take some time to regain momentum.

Nevertheless, China continues to exhibit momentum, serving as a key growth engine for the company, with expansion in localization, digitization and community engagement. The company looks to open stores in its international markets, most of which will be in China. Management noted that the product plans will benefit the China business, given the importance of lounge and social products in this market.

LULU’s Competition in China

NIKE, Inc. NKE and adidas AG ADDYY are the key companies competing with lululemon in China.

NIKE has a solid presence in China, which is central to its global growth strategy. The company has strategically invested in China to reinforce its consumer engagement and gain competitive leverage. NIKE’s China business, commonly referred to as Greater China, has remained a challenging market, marked by a difficult operating environment and tariff-related headwinds. In fiscal 2026, NKE expects North America to continue leading its global recovery, while Greater China is expected to take longer to rebound given the unique marketplace dynamics.

adidas is another sporting goods giant vying for a larger share of the Chinese market. The company is aggressively focused on expanding its presence in China by launching locally relevant product lines and enhancing its brand equity via collaborations and marketing campaigns. Amid a highly evolving geopolitical and macroeconomic environment, adidas has been diversifying its supply chain and adopting mitigating strategies. Initiatives like the “Future City Concept” stores highlight adidas’ ongoing commitment to forward retail strategy.

LULU’s Price Performance, Valuation and Estimates

Shares of lululemon have lost 56.1% year to date compared with the industry’s decline of 18.1%.

From a valuation standpoint, LULU trades at a forward price-to-earnings ratio of 13.09X compared with the industry’s average of 16.13X.

The Zacks Consensus Estimate for LULU’s fiscal 2025 earnings implies a year-over-year drop of 11.8% while that of fiscal 2026 shows growth of 1.1%. The company’s EPS estimate for fiscal 2025 and fiscal 2026 has moved down in the past 30 days.

lululemon stock 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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