As the global wellness economy surges toward the $9 trillion mark by 2028, athleisure has transformed from a trend into a lifestyle. Consumers today are willing to pay a premium to look and feel good, both in the gym and on the street.
Lululemon Athletica (NASDAQ: LULU) sits right at this crossroads of wellness and fashion. The brand made yoga pants a wardrobe essential and built a loyal following of customers who love its premium, high-quality gear. It’s more than just clothing, it’s a lifestyle.
After reporting Q1 2025 earnings, Lululemon’s stock fell over 30% in just a few weeks. Investors panicked over slowing U.S. sales, rising costs, and a lower profit outlook. The selloff has many wondering: Is Lululemon losing its magic or is this an overreaction?
What Went Wrong in Q1’25?
1. Sales slowed in the U.S.
Lululemon still grew 8% overall, but most of that came from international markets like China (+22%). In the U.S., growth was only about 4%, and same-store sales actually declined slightly.
What’s happening? After years of rapid post-pandemic growth, the U.S. activewear market is hitting a bit of a plateau. Consumers are also more cautious with spending due to inflation and rising interest rates. While Lululemon’s core products remain strong, new seasonal collections didn’t create as much buzz this summer.
This doesn’t mean the U.S. market is dead. It’s just maturing, which makes international growth even more important.
2. Costs went up.
While Lululemon’s main products (like Align leggings) still sold well at full price, the company had to mark down some seasonal items (like summer collections) to clear inventory. Add in higher tariffs on imports and rising store costs, and profit margins dropped.
The result? Profitability dipped. Gross margin improved slightly, rising 60 basis points to 58.3%, thanks to strong pricing on core products. However, operating margin dropped 110 basis points to 18.5%, as higher selling, general & administrative (SG&A) expenses offset the gross margin gain.
3. They lowered profit guidance.
Management cut their full-year earnings forecast slightly because tariffs are costing more than expected. Even though revenue targets stayed the same, this spooked investors.
Why? Tariffs were hitting harder than expected. 110 basis points of margin impact vs. the 60 bps they initially estimated.
Even though it’s a relatively small adjustment, investors hate surprises. The phrase “larger-than-expected tariffs” spooked the market and triggered a wave of selling.
In short: U.S. shoppers are buying a bit less, costs are higher, and profits will be a bit lighter this year.
Why the Market Overreacted
Yes, Q1’25 quarter wasn’t perfect but the long-term story hasn’t changed. Here’s why this panic looks overdone:
1. The brand is still premium.
Lululemon’s core categories remain untouchable.
Align leggings, Scuba hoodies, and ABC pants still sell out at full price.
Customers aren’t abandoning the brand. They’re just being pickier on seasonal capsules. That means Lululemon’s pricing power and brand loyalty remain strong.
2. International growth is booming.
The U.S. may be slowing, but international markets are on fire:
- China Mainland +22% revenue growth in Q1
- Rest of World +16% revenue growth
Management expects China to grow another 25–30% in 2025. A huge new revenue engine that offsets U.S. softness.
And remember: Lululemon is still in early innings globally. Nike and Adidas operate in 150+ countries; LULU is only in ~20. That’s a massive runway.
3. The balance sheet is rock-solid.
Lululemon has 0 debt, over $1.3 billion in cash, and even bought back $441M in shares last quarter. This shows that they are aligned with shareholders. Few apparel brands are this financially strong.
This financial strength is rare in apparel retail and gives LULU the flexibility to invest in growth, weather short-term shocks, and support shareholders.
4. The stock is now cheap.
After the selloff, LULU trades at about 15x forward earnings near the market average. For a premium brand with global growth potential with:
- 58% gross margins
- Double-digit international growth
- And 0 debt
That is a bargain.
Historically, LULU has traded at 30-40x earnings during growth phases. Even with modest assumptions, a simple valuation model suggests ~30% upside from today’s price.
The Bigger Picture Still Looks Bright
The trends that made Lululemon a success are still in motion:
1. Athleisure is growing globally. People want clothes that are both comfortable and stylish.
2. International markets are wide open. Europe, Asia, and other regions are still in the early stages for LULU.
3. The men’s business is expanding. It’s still underdeveloped, but demand is rising fast.
4. New products are coming. Shoes, golf and tennis gear, and more ways to keep loyal customers spending.
This quarter is a soft patch in the U.S., but it doesn’t change the company’s long-term playbook.
Some risks to note:
1. Slowing U.S. growth (market saturation risk)
The U.S. is still Lululemon’s largest market (~70% of revenue), but comparable sales fell -2% in Q1 2025. As the brand matures in North America, it’s harder to maintain the double-digit growth it enjoyed post-pandemic. If U.S. demand plateaus further, it could pressure overall growth until international markets scale enough to offset it.
2. Tariffs and rising costs
Higher import tariffs already forced Lululemon to lower its EPS guidance for 2025. Tariffs, supply chain pressures, or increased labor costs in Asia (where many products are made) could continue to erode margins. Since Lululemon is a premium brand, it can raise prices selectively but there’s a limit before consumers push back.
3. Competition is heating up
The premium athleisure space is more crowded than ever:
- Alo Yoga, Vuori, and Gymshark are winning younger customers.
- Nike and Adidas are expanding their own yoga/athleisure lines.
- Even mass brands like Uniqlo and H&M are copying the look at much lower price points.
If competitors start stealing market share or create a “trend shift” away from Lululemon, growth could slow.
These risks are real but Lululemon’s loyal customers, strong brand, and global expansion potential give it more leverage than most peers.
Bottom Line: Short-Term Pain, Long-Term Gain
Here’s the big picture:
- U.S. comps slowed.
- Tariffs hurt margins.
- EPS guidance dipped.
But…
- Core products are still strong and sell at full price.
- International sales are accelerating especially in China.
- The brand’s moat (loyalty + pricing power) is intact.
- The stock is far cheaper than it’s been in years.
For long-term investors, this looks like one of those rare chances to buy a premium global brand on sale.
And here’s something to think about:
Back in 2014, many thought Lululemon had peaked after its first big stumble. The stock was $40. Ten years later, even after this recent dip, it’s over $200.
History doesn’t repeat perfectly, but it often rhymes.
Short-term fear has a habit of creating the best long-term buying opportunities.
The wellness boom isn’t slowing and neither is Lululemon’s ambition.
Disclaimer: I bought some.
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