Lululemon Earnings: Tariffs, Consumer Worries Take a Toll on Traffic

Morningstar’s Metrics for Lululemon Athletica

• Fair Value Estimate: $315.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Lululemon Athletica’s Earnings

Even though we lifted our estimates after its holiday sales update, Lululemon’s LULU fourth-quarter results eclipsed our forecast. However, shares fell about 10% in March 27 postmarket trading on weakening US sales trends leading to a disappointing 2025 outlook. Specifically, the firm guided to total sales growth and earnings per share of 5%-7% and $14.95-$15.15, respectively, versus our estimates of 8.6% and $15.52.

Although we may lower our near-term forecast, Lululemon has a history of providing conservative guidance, and the effect on our fair value estimate is likely to be immaterial. We think Lululemon’s brand strength holds despite recent challenges related to rising competition and product management. Shares trade close to our valuation but could become attractive if weakness persists.

In a quarter that was one week longer than the year-ago quarter, Lululemon’s 12.7% sales growth outpaced our 11.5% estimate. Sales growth in the Americas (77% of total) matched our 7% estimate, but flat comparable sales were subpar, and the firm said low consumer confidence, related to tariffs and economic conditions, is taking a toll on US traffic. It is also likely that rising competition in women’s athleisure is a factor. However, we think Lululemon’s recent apparel releases have been well-received, and 2025 product innovation should be an improvement over 2024.

Meanwhile, Lululemon’s international growth is helping it overcome its US weakness. The firm achieved quarterly sales growth rates of 46% and 30% in its Mainland China (12% of total) and rest of the world (11%) segments, respectively. These rates surpassed our respective 37% and 26% estimates, and we think Lululemon is outperforming peers in key regions. Over the next five years, we forecast sales growth rates in international territories of around 20%, above the mid-single-digit growth we project for the Americas.