Lululemon Earnings: Tariffs Take a Toll but Brand Remains Healthy; Shares Attractive

Key Morningstar Metrics for Lululemon Athletica

• Fair Value Estimate: $315
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Lululemon Athletica’s Earnings

Lululemon LULU achieved 7% sales growth in 2025’s first quarter. Due to an increase in costs, its operating margin fell 110 basis points to 18.5%. Shares plummeted more than 20% in after-hours June 6 trading as it lowered its full-year earnings outlook on tariff-related costs and economic uncertainty.

Why it matters: Lululemon reported sales growth rates of 3%, 21%, and 16% in the Americas (71% of the total), mainland China (15%), and the rest of the world (14%). Although near our estimates, sales growth has slowed due to increasing competition and uneven demand for sportswear.

• The firm held its 2025 sales growth guidance (5%-7%) but lowered its EPS outlook to $14.58-$14.78 from $14.95-$15.15 previously due to the risk of markdowns and a 60-basis-point gross margin reduction related to tariffs (based on a 30% rate for China and 10% for most other countries).
• Much of the tariff impact is expected in the second quarter as Lululemon plans mitigation measures—such as supply changes and price increases—for the year’s second half. Given our view that the firm has pricing power, we think these measures will be successful (unless tariffs are raised).

The bottom line: We expect to reduce our $315 fair value estimate by a low-single-digit percentage on the tariffs, but shares are attractive. Our narrow moat rating on Lululemon is based on the value of its brand. The firm achieves strong margins, produces consistent cash flow, and has no debt.

• A return to double-digit percentage sales growth is unlikely, but high-single-digit rates are realistic through Lululemon’s Power of Three x2 plan for product innovation, improvements in the guest experience, and international expansion. We are holding our Exemplary Capital Allocation Rating.
• Long-term operating margins of about 22% are also realistic, given Lululemon’s direct-to-consumer model, its ability to offer products at high prices, and the attractiveness of the athleisure category.