VALUATION HIGHLIGHTS
- Americas constitute 65% of the Trefis price estimate for Lululemon Athletica's stock.
- China Mainland constitutes 15% of the Trefis price estimate for Lululemon Athletica's stock.
- Rest of World constitutes 13% of the Trefis price estimate for Lululemon Athletica's stock.
WHAT HAS CHANGED?
- Lululemon Q2 2025 Snapshot
Lululemon posted mixed results for the quarter ended July 28, missing Wall Street’s sales expectations for the first time in over two years and trimming its full-year guidance. Revenue rose 7% year-over-year to $2.37 billion, but comparable sales increased just 2%, well below the 5.9% estimate, with the Americas declining 3%. Despite the sales shortfall, the company delivered earnings above expectations, as net income climbed to $393 million, or $3.15 per share, from $342 million, or $2.68 a year earlier. Profitability also improved, with gross profit up 9% to $1.4 billion and gross margin expanding 0.8 percentage points to 59.6%, helping to drive operating income higher.
During the quarter, Lululemon pulled its Breezethrough leggings, launched in early July, after it received a wave of complaints about the product’s unflattering fit.
Note: Lululemon's FY'24 ended on February 2, 2025.
- Outlook
The company expects full-year net revenue to be between $10.38 billion and $10.48 billion, down from a previous range of between $10.7 billion and $10.8 billion. Lululemon anticipates earnings per share will be in a range of $13.95 to $14.15, down from previous guidance of $14.27 to $14.47. In the upcoming quarter, Lululemon said it expects sales to grow 6% to 7%. The company said it expects third-quarter earnings per share to be between $2.68 and $2.73
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of Lululemon's value that present opportunities for upside or downside to the current Trefis price estimate for Lululemon:
Lululemon EBITDA Margin: One factor critical to Lululemon's cash profits is the high margins on the company's products. The demographic targeted by the company is higher-end consumers. As a result, its products were priced at much higher levels historically than similar products manufactured by companies like Nike, Under Armour, and Adidas. But that has changed in the recent past. To add to this, the company has faced increasing costs. This has dampened the EBITDA margin. The figure fell from 26% in 2021 to about 21% in 2022, due to higher markdowns, sales mix, and increased damages and shrink due to supply chain constraints during this period. However, this metric recovered to around 27% in 2023. In 2024, this metric further grew to 28.7%, largely driven by higher product margins. By the end of our forecast period, we expect the LULU EBITDA margin to increase and stabilize around the 29% level. If the margins reach 25%, it would mean a ~15% downside to our price estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for LULU at the top of the page.
BUSINESS SUMMARY
Lululemon Athletica Inc. is a manufacturer of yoga-inspired athletic wear. The company's products include performance apparel and accessories for women, men, and young girls. The apparel assortment includes items such as fitness pants, shorts, tops, and jackets, and is designed for healthy lifestyle activities and general fitness.
Lululemon's products are sold through company-owned stores and showrooms, the company website, and several strategic partners. The company also sells products with small visual or design defects through its factory outlets or specially organized warehouse sales.
Its products are manufactured in factories in Canada, the United States, Peru, China, Taiwan, South Korea, Israel, India, Bangladesh, Indonesia, Malaysia, Cambodia, Sri Lanka, Vietnam, and Switzerland.
The company operates in over 25 countries around the world and organizes its operations into four regional markets: Americas, China Mainland, Asia Pacific (APAC), and Europe and the Middle East (EMEA). They report three segments, Americas, China Mainland, and Rest of World, which comprises the APAC and EMEA regions on a combined basis.
During 2024, 40% of Lululemon’s products were manufactured in Vietnam, 17% in Cambodia, 11% in Sri Lanka, 11% in Indonesia, 7% in Bangladesh and the remainder in other regions, according to the company’s annual report. Lululemon does not own or operate any manufacturing facilities and relies on suppliers to produce and provide fabrics for its products.
SOURCES OF VALUE
The company is engaged in creating yoga and fitness activity-based communities in the U.S. and Canada. The company organizes many fitness camps and has also entered into partnership agreements for the sale of its apparel with many athletic teams, yoga studios, and fitness facilities in the U.S. and Canada. Most of the company's retail sales are a result of the visibility the company gains from these interactive endeavors. Additionally, the company's wholesale program is based on identifying fitness and yoga studios to which it partners and sells its products.
The company also offers yoga studios and fitness club essentials like yoga mats, blocks, and straps.
KEY TRENDS
Some of the key factors driving Lululemon's stock value are unique to the company. These include:
- The "scarcity" model
Lululemon's stores are usually known for keeping a low inventory of new products and quick turnover of said inventory. This means that customers loyal to the brand are generally aware that if they like a product, they had better purchase it right away because it might not be there the next time they visit the store. Additionally, the company rarely offers sales, which means that customers have to pay the full price for products at all times.
- Scope To Expand
Lululemon is competing in the global sports apparel market, estimated to grow from around $210 billion in annual revenue in 2024 to a projected $223.92 billion in 2025 at a compound annual growth rate (CAGR) of 6.3%. The growth in the historic period can be attributed to fitness and health awareness, athleisure trends, celebrity endorsements and influencer culture, and e-commerce growth. To put that into context, Lululemon's revenue was just around $11 billion in 2024.
- Expensive products
Lululemon has crafted for itself a reputation as an apparel company that makes aesthetically pleasing, reliable, and functional products. While the company has been working on improving the fit and fabric of its products, it has still managed to gain for itself a strong and loyal customer base. These are some of the reasons why it manages to charge a high premium for its products.
- Generalized trend toward fitness-related activities & health-conscious lifestyle
Lululemon's products are benefiting from a generalized trend toward fitness-related activities and health-conscious lifestyles. Following the recession, the private sector has stepped up spending on healthcare. The introduction of products like Apple's iWatch, Samsung's Galaxy Gear, and apps like Nike+ and Under Armour's MapMyFitness can be seen as complementary to fitness and training apparel. As the costs of healthcare have been outsourced from the state to the private sector, individuals are likely to find treatments much more expensive than they were in the past. The result is a much more health-conscious society, taking precautionary steps far in advance to avoid those prohibitive and potentially fatal costs. These trends are driving the growing interest of urban dwellers in training, running, and other such activities. If these trends continue, consumer spending on such products is likely to rise. In that environment, a company with a unique retailing strategy and a loyal customer base like Lululemon is likely to benefit.
- The company continues on its growth strategy
Lululemon unveiled a new five-year growth plan named Three x2 in April 2022. The plan aims to roughly double its annual revenue from $6.3 billion in fiscal 2021 to $12.5 billion by fiscal 2026. The retailer plans to hit that target by doubling its men's and digital revenues as well as quadrupling its international revenue - relative to fiscal 2021.
