In case you missed it:

Please note that Lululemon raised quarterly guidance in January with only a few weeks left in the period.

Annual revenue guidance missed estimates by 0.8% and annual $15.05 EPS guidance missed estimates by $0.35 or 2.3%. Guidance represents plans for 7.5% Y/Y revenue growth (excluding last year’s extra week) and 3% Y/Y EPS growth.

EBIT margin is expected to fall by 100 bps Y/Y, which is slowing down EPS growth. About half of that is related to FX and tariff headwinds. Specifically, FX erased $0.33 from its forecast. The other half is related to “layering back on” expenses that were cut last year. It’s ready to spend more on marketing now that product assortment isn’t a glaring issue. It remains ahead of schedule on the 5-year margin plans laid out in 2021 (and ahead for all other pieces of those targets).

Lulu trades for 20x its earnings guidance. The chart of consensus estimates below has not yet been updated to reflect its guidance. EPS growth is expected to accelerate to 10.1% in calendar 2026. Estimates for calendar 2025 will likely fall by a percent or two after this report.

Other guidance notes:

Finally, the company reiterated 2026 revenue targets calling for $12.5 billion. This is 1.6% ahead of consensus expectations.

A lot More Guidance Context:

As we’ve talked about over the last several Lululemon quarters, the company’s level of product newness and innovation was too low exiting 2023 and for most of 2024. It had a lot of work to do on introducing new and improved goods to cater to shoppers. This was especially true for the USA and specifically for women in the USA. Traffic across its stores remained healthy, but conversion rates began to fall as shoppers didn’t find exactly what they wanted. Lululemon was leaving revenue on the table. As it told us to expect, the company now has a level of newness on par with historical levels and an innovation pipeline that leadership was clearly excited about. So why the guidance disappointment? Micro-based blame shifted to macro-based blame to explain things.

Whether it’s constant tariff back-and-forth or overall macro and economic concerns, consumer spending within retail has been volatile and somewhat challenged in Q1. We heard that from Nike, American Eagle, Abercrombie and several other apparel vendors. Lulu even ran a survey with Ipsos to confirm this was the case and the weakness wasn’t specific to its brand. While Lululemon does cater to a more affluent crowd, it is not immune from all of this noise.

As a result, leadership called out weaker traffic trends to start the year in the USA (not anywhere else). It also talked about improving shopper conversion rates for consumers still coming to stores, to offer evidence of its heightened newness bearing fruit. The company explicitly said responses to all of this fresher assortment were as planned, which points to this truly stemming from weaker macro. The net impact of lower traffic but higher conversion meant trends in the USA quarter-to-date have not improved vs. Q4. Lululemon did not bake in much improvement to these traffic trends all of 2025.

While these headwinds are real, I think Lululemon intentionally talked up poor macro. It’s an extremely easy excuse to make when other peers are saying the same thing. And? It makes it easier to outperform a lower bar throughout 2025. It was obvious on the call that the company responded to immense uncertainty and macro chaos with more prudence in its guidance. That is the correct decision. There is no reason to get overly ambitious when offering brand new annual guidance when we don’t know what the backdrop will look like in a week, let alone a year. Lulu is generally conservative with its initial annual targets, like most companies are, and I think this was more of the same. 

The debate will now turn to how meaningfully this firm can accelerate when consumer confidence improves. Is this truly because of the economy? Or is this still because Lulu’s brand is losing some of its shine? I’m cautiously optimistic that the brand is fine and will show that as the backdrop cooperates. Again… we have heard from so many apparel vendors (and Delta) about how hesitant their shoppers currently are. Lulu doesn’t exist in a vacuum.

If I’m right, Lulu is not decaying… it’s hibernating and in prime position to rev its engine as headwinds abate. Had it not fixed its own inventory issues, like it thinks it has, that would not have been the case.

Brand-Building:

Brand-building remains a heavy focus and a large opportunity for Lululemon in all of its markets. Outside of its home country of Canada, the USA leads the world in unaided brand awareness at around 35%. It’s around 25% in Australia, 15% in China and 10% or lower across Japan and Europe. While the brand may already seem ubiquitous and mature, that is not the case. 

This year, it plans to sharply accelerate the cadence of local activations. The USA is priority one, as it recently sponsored the Vegas half-marathon and opened a two-week pop-up studio for its new Glow Up Brand in NYC . To augment these efforts, Lululemon is partnering with more famous athletes to extend its global ambassador program. This quarter, Max Homa (largest social media following out of any pro golfer outside of Tiger), Frances Tiafoe (4th ranked tennis player in the USA) and Luis Hamilton (Formula 1) all joined the team. For the highly popular Phoenix Open PGA event, Lulu was out in force to support Homa and grow its brand. There will be a lot more of this going forward. Lulu thinks all of this work helped contribute to “strong social channel” engagement year-to-date.”

Finally, Lululemon has plenty of 2025 marketing plans for the national stage. Its “Live Like You Are Alive” slogan will be loudly and consistently communicated across the globe in marketing efforts this year. Using this, they will feature a large campaign to celebrate the 10th anniversary of its popular Align franchise, as well as a running-focused campaign later this year. And if macro shapes up better than currently feared, they plan to spend more than currently budgeted to capture more demand.

Outside of awareness, the membership program is a perfect complement to deepen shopper engagement, loyalty and lifetime value. It’s another key part of building the Lulu brand. Not only does this provide higher quality customers, but offers a highly targeted and relevant destination to promote new products and events. It’s the most efficient external marketing outlet for Lulu and any consumer-facing brand with a successful loyalty program. And in this specific case, the program’s traction is palpable. This quarter, it crossed 28 million total members, which represents 40% growth compared to just six months ago.

Product:

As briefly mentioned, there was tangible excitement about all of the newer launches and assortment Lulu has introduced over the last year+. Its new women’s “Glow Up” technical franchise was well received and its new “Daydrift” women’s pants “sold out across several sizes and colors.” It’s currently restocking. This year, it plans to debut a new linen-based fabric, more men’s shorts (called mile maker) and many other products. The rhythm of newness has accelerated and that will be a permanent change.

The quarter was positive and the guidance was slightly underwhelming. Net-net, I’d call this an average performance. Not something to pound my chest about; not something that materially shakes my conviction in this name.

I think it’s highly likely that macro was correctly used as a convenient excuse to provide more financial margin of safety in what will be an exceedingly unpredictable year. There’s every reason to lean conservative when modeling expectations amid that unpredictability. So many other companies have (I think) done the same.

With that said, I expect Lulu’s current targets to be surpassed. And while that’s nice, it’s not what I care about most right now. What matters more is them showing clear signs of newness and innovation working as well as when Lulu’s brand was rocking. This is what will determine whether Lulu can keep delivering solid multi-year compounding going forward; signs are reasonably positive. They’ve made the needed organizational and assortment process changes. They’ve put themselves in much better position to meaningfully reaccelerate results when the backdrop cooperates. When will that be? I think months, not years. But regardless, I think they’re in a good spot to take advantage.

At the same time, I’m not planning on adding to my stake based on where the stock price is right now ($308). While I’m comfortable enough in assuming a USA acceleration (they’re already killing it everywhere else), I am still speculating a bit. This is not a guarantee and leadership has not been perfect in recent years. Nothing alarmingly bad from them… but some blunders for sure. Furthermore, the multiple is still 2 turns higher than where I last added during the latest market pullback (18x forward earnings). I’d either like to buy more shares below 18x forward or get more clarity to gain incremental confidence in the USA turnaround. One or the other. I am not adding today and I have zero interest in trimming. I’m happy to do nothing while they go prove it like I think they will.