Lululemon Athletica Inc (LULU) Q1 2025 Earnings Call Highlights: Strong Revenue Growth and Strategic Challenges

• Americas: Increased 3% or 4% in constant currency.
• China Mainland: Increased 21% or 22% in constant currency.
• Rest of World: Increased 16% or 17% in constant currency.

Release Date: June 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Lululemon Athletica Inc (LULU, Financial) reported a 7% increase in total revenue for Q1 2025, or 8% on a constant currency basis, reaching $2.4 billion.
• Gross margin improved by 60 basis points to 58.3%, driven by lower product costs and improved markdowns.
• The company continued its share repurchase program, buying back $430 million of stock, demonstrating confidence in its long-term prospects.
• Revenue in China Mainland increased by 22% in constant currency, showcasing strong growth in this key market.
• Lululemon Athletica Inc (LULU) maintained its full-year revenue guidance, expecting 7% to 8% growth, indicating confidence in its strategic initiatives.

Negative Points

• The U.S. market showed only a 2% revenue growth, with consumers remaining cautious and intentional about their buying decisions.
• The company anticipates a 110 basis point decrease in gross margin for the full year due to increased tariffs.
• SG&A expenses increased to 39.8% of net revenue, up from 38.1% last year, driven by FX revaluation losses.
• Operating margin decreased to 18.5% from 19.6% in Q1 2024, reflecting increased costs and strategic investments.
• Lululemon Athletica Inc (LULU) expects a decline in operating margin by approximately 160 basis points for the full year, primarily due to tariffs and increased markdowns.

Q & A Highlights

Q: Can you expand on the mitigation efforts for tariffs and what you're thinking about regarding price increases and diversifying sourcing? Also, any category trends in the U.S. business with the newness offered?
A: Meghan Frank, CFO, explained that the mitigation efforts include strategic price increases on a small portion of the assortment and pursuing efficiency actions in sourcing. Calvin McDonald, CEO, noted that the newness is balanced across activity and lifestyle categories, with strong responses to new products like the Daydrift trouser and Align No Line.

Q: Could you elaborate on the comp drivers and any updates on the progression of the quarter?
A: Meghan Frank, CFO, stated that there was a decline in store traffic, particularly in the U.S., but conversion trends remained consistent, and there was an uptick in average dollars per transaction. The progression from April into May showed no material changes.

Q: Why not do more with price to offset tariffs, and is the bigger disconnect between top and bottom line mostly due to tariffs?
A: Meghan Frank, CFO, confirmed that the decline in operating margin guidance is driven by the net impact of tariffs, with some offsets from pricing and supply chain efficiencies. There are no meaningful changes in expense posture, and strategic pricing is being considered based on elasticities.

Q: Can you elaborate on the slight increase in markdowns now contemplated in the full-year outlook?
A: Meghan Frank, CFO, mentioned that markdowns were down 10 basis points in Q1, but given consumer confidence and macroeconomic concerns, a slight increase in markdowns is anticipated for the second half of the year, in the range of 10 to 20 basis points above last year.

Q: Given the success of new launches, what are your thoughts on returning the U.S. business to sustainable comp growth?
A: Calvin McDonald, CEO, expressed confidence in the newness and innovation, noting that the U.S. consumer remains cautious. The company is gaining market share in the premium activewear segment, and the newness is resonating well with consumers.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.