lululemon athletica inc. (NASDAQ:LULU) reported strong third-quarter fiscal 2025 results, surpassing both revenue and earnings-per-share (EPS) expectations. Driven by international growth and robust digital sales, lululemon earnings indicate resilience in a competitive retail market. While margins faced pressure from markdowns, tariffs, and elevated SG&A costs, management raised its fiscal 2025 revenue and EPS guidance, reflecting confidence in continued momentum.
Q3 Revenue and EPS Performance
In Q3 fiscal 2025, lululemon posted revenues of $2.57 billion, up 7.1% year over year, beating the Zacks Consensus Estimate of $2.48 billion. EPS came in at $2.59, down 9.8% from $2.87 in the prior-year quarter but surpassing the consensus estimate of $2.22. The top-line growth was driven primarily by international expansion, particularly in Mainland China, where revenues increased 46% year over year (47% in constant currency).
In contrast, revenues in the Americas declined slightly, with the United States down 3% and Canada flat on a constant-currency basis. Total comparable sales rose 1% overall, with a 5% decline in the Americas and an 18% increase internationally. Digital revenues contributed $1.1 billion, or 42% of total sales, reflecting strong e-commerce adoption.
Margins and Operating Income
Gross profit improved 2% year over year to $1.43 billion. However, gross margins contracted 290 basis points to 55.6% due to increased markdowns and tariff impacts. Management noted that gross margins outperformed guidance, helped by disciplined cost control and lower-than-expected tariff effects.
SG&A expenses rose 8.6% to $988.3 million, representing 38.5% of revenues. Operating income declined 11% to $435.9 million, while the operating margin contracted 350 basis points to 17%. Despite these pressures, lululemon earnings beat model expectations, highlighting effective expense management.
International Growth Drives Performance
International markets, particularly Mainland China, were key contributors to lululemon earnings growth. Comparable sales in China rose 24%, while the Rest of the World increased 9% on both reported and constant-dollar bases. Revenue growth in China exceeded guidance, supporting management’s confidence in FY25 targets.
The Americas segment showed mixed results, with flat-to-negative revenue trends. However, digital sales and strategic store expansions offset some in-store weakness.
Store Expansion and Capital Allocation
In Q3, lululemon opened 12 net new stores, bringing its total to 796 locations. For fiscal 2025, management projects 46 net new store openings, with 15 in the Americas, including nine in Mexico, and the remainder internationally, primarily in China. Additionally, 36 co-located optimizations are planned, up from 35 previously forecasted.
The company exited Q3 with $1 billion in cash, no debt, and $4.5 billion in stockholders’ equity. Capital expenditures totaled $167 million, and lululemon repurchased 1 million shares for $189 million. A $1-billion increase to the share repurchase program brings total authorization to $1.6 billion.
FY25 Outlook and Q4 Guidance
For fiscal 2025, lululemon raised net revenue guidance to $10.96–$11.05 billion, a 4% increase year over year, and EPS guidance to $12.92–$13.02. Management expects revenue growth in Mainland China to reach or exceed the high end of the 20–25% guidance range, while the Rest of the World is projected to grow in the high teens.
In Q4, revenues are expected at $3.5–$3.59 billion, reflecting a 1–3% decline year over year, with EPS projected at $4.66–$4.76. Gross margin is forecasted to decline 580 basis points due to higher tariffs, fixed cost deleverage, and continued investment in the multi-year distribution center project.
Key Takeaways for Investors
lululemon earnings demonstrate strong international momentum, robust digital sales, and disciplined expense management. While margins face pressure from markdowns and tariffs, the company’s guidance for fiscal 2025 reflects confidence in sustained growth. Investors can view lululemon (NASDAQ:LULU) as a well-positioned apparel retailer leveraging international expansion, digital channels, and strategic store openings to drive long-term performance.
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