Lululemon Athletica ((LULU)) has held its Q4 earnings call. Read on for the main highlights of the call.
Lululemon Athletica’s recent earnings call painted a picture of robust revenue growth and successful product innovation, though it also highlighted some challenges. The company has shown impressive performance, yet it faces hurdles in the U.S. market due to declining traffic and significant foreign exchange (FX) and tariff headwinds, which are expected to pressure margins in 2025.
Revenue Growth Exceeds Expectations
Lululemon reported a remarkable 13% increase in total net revenue for Q4, or 14% in constant currency, reaching $3.6 billion. Excluding the 53rd week, net revenue still saw an impressive rise of 8% or 9% in constant currency, showcasing the company’s strong financial performance.
Strong International Performance
The company’s international markets, particularly China, have been a bright spot. Revenue in China Mainland surged by 38% or 39% in constant currency, with comparable sales up by 27%. The Rest of World also saw significant growth, with revenue increasing by 22% or 26% in constant currency, underscoring Lululemon’s successful global expansion strategy.
Product Innovation and Launches
Lululemon’s commitment to product innovation is evident with the successful launches of new product lines such as Glow Up, Daydrift, BeCalm, and the expansion of the Align franchise. These initiatives highlight the company’s ability to adapt and meet consumer demands, contributing to its strong market position.
Share Repurchase Program
Reflecting confidence in its long-term prospects, Lululemon repurchased $332 million of stock in Q4, bringing total repurchases in 2024 to $1.6 billion. This move signals the company’s robust financial health and commitment to returning value to shareholders.
Softening Traffic in the U.S.
Despite international success, Lululemon faces challenges in the U.S. market, where traffic declines have been observed. This is attributed to a dynamic macro environment and a cautious consumer base, which could impact future performance.
FX and Tariff Headwinds Impact Margins
The company anticipates that FX and tariffs will negatively impact earnings per share (EPS) by $0.30 to $0.35 in 2025. Additionally, gross margins are expected to decrease by approximately 60 basis points, posing a challenge to maintaining profitability.
Operating Margin Pressure
Operating margins are projected to decrease by approximately 100 basis points in 2025 due to FX headwinds, tariffs, and increased expenses. This indicates potential pressure on the company’s profitability in the coming year.
Forward-Looking Guidance
For 2025, Lululemon expects revenue to range between $11.15 billion and $11.3 billion, marking a growth of 7% to 8% when excluding the 53rd week. The company plans to open 40 to 45 net new stores, primarily in international markets, which will contribute to a 10% increase in square footage. However, gross margins are anticipated to decrease by approximately 60 basis points due to FX and tariff challenges. SG&A expenses are expected to see a deleverage of 40 to 50 basis points, and operating margin is projected to decrease by 100 basis points compared to 2024. The effective tax rate is estimated at approximately 30%, with diluted EPS expected to range from $14.95 to $15.15. Lululemon also plans capital expenditures of $740 million to $760 million to support its growth initiatives.
In summary, Lululemon Athletica’s earnings call reflects a company that is thriving in terms of revenue growth and product innovation, yet it faces significant challenges in the U.S. market and from external economic factors. The company’s forward-looking guidance suggests continued growth, particularly in international markets, but also highlights potential pressures on margins due to FX and tariffs. Investors will be keenly watching how Lululemon navigates these challenges while capitalizing on its strengths.