Lululemon’s second quarter results were met with a significant negative market reaction, primarily due to underperformance in the U.S. and a reduction in full-year revenue expectations. Management attributed these results to product fatigue in core casual lines and heightened competitive pressures in the premium athletic wear segment. CEO Calvin McDonald acknowledged that the company’s product cycle in core lounge and social categories had become too predictable, stating, “We have let our product life cycles run too long.” He also emphasized that while international markets delivered strong growth, the U.S. business faced challenges related to consumer selectivity and a lack of newness in the assortment.
Is now the time to buy LULU? Find out in our full research report (it’s free).
Lululemon (LULU) Q2 CY2025 Highlights:
- Revenue: $2.53 billion vs analyst estimates of $2.54 billion (6.5% year-on-year growth, 0.5% miss)
- EPS (GAAP): $3.10 vs analyst estimates of $2.85 (8.7% beat)
- Adjusted EBITDA: $643.5 million vs analyst estimates of $597.9 million (25.5% margin, 7.6% beat)
- The company dropped its revenue guidance for the full year to $10.93 billion at the midpoint from $11.23 billion, a 2.7% decrease
- EPS (GAAP) guidance for the full year is $12.87 at the midpoint, missing analyst estimates by 11.1%
- Operating Margin: 20.7%, down from 22.8% in the same quarter last year
- Locations: 784 at quarter end, up from 721 in the same quarter last year
- Same-Store Sales rose 1% year on year (2% in the same quarter last year)
- Market Capitalization: $19.44 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Lululemon’s Q2 Earnings Call
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Janine Hoffman Stichter (BTIG) asked about the timeline for product assortment changes and the impact on near-term results. CEO Calvin McDonald explained that guests will see more new styles in the second half of the year, but the full benefits are expected in 2026.
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Alexandra Straton (Morgan Stanley) questioned if the 60-40 performance-to-casual product mix remains optimal. McDonald responded that while the split is a good starting point, the company will adapt based on guest response to new styles.
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Brooke Roach (Goldman Sachs) inquired about the magnitude of underperforming franchises and how quickly innovation can offset pressure. McDonald stated the shift toward newness is focused on casual categories and will be tested for guest response.
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Jay Sole (UBS) asked how Lululemon will accelerate supply chain speed. McDonald highlighted new vendor partnerships and technology investments, including the Chief AI and Technology Officer, to reduce lead times and improve agility.
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Paul Lejuez (Citi) pressed for clarity on the balance between pricing as a mitigation tool and increased markdowns. CFO Meghan Frank noted that pricing actions are selective and markdown pressure is primarily due to excess seasonal inventory, not directly related to tariff mitigation.
Catalysts in Upcoming Quarters
In the coming quarters, our analysts will closely monitor (1) the pace at which new product introductions refresh the U.S. assortment and drive traffic, (2) the effectiveness of mitigation strategies for tariff and de minimis cost increases, and (3) continued strength in international markets, particularly China. We will also track inventory management and the rollout of technology-driven agility initiatives as key indicators of progress.
Lululemon currently trades at $164.19, down from $206.10 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).
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