Athletic apparel retailer Lululemon (NASDAQ: LULU) announced better-than-expected revenue in Q3 CY2025, with sales up 7.1% year on year to $2.57 billion. On the other hand, next quarter’s revenue guidance of $3.54 billion was less impressive, coming in 0.7% below analysts’ estimates. Its GAAP profit of $2.59 per share was 17.1% above analysts’ consensus estimates.
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Lululemon (LULU) Q3 CY2025 Highlights:
- CEO Calvin McDonald will depart in January
- Revenue: $2.57 billion vs analyst estimates of $2.48 billion (7.1% year-on-year growth, 3.7% beat)
- EPS (GAAP): $2.59 vs analyst estimates of $2.21 (17.1% beat)
- Revenue Guidance for Q4 CY2025 is $3.54 billion at the midpoint, below analyst estimates of $3.57 billion
- EPS (GAAP) guidance for the full year is $12.97 at the midpoint, roughly in line with what analysts were expecting
- Operating Margin: 17%, down from 20.5% in the same quarter last year
- Locations: 796 at quarter end, up from 749 in the same quarter last year
- Same-Store Sales rose 1% year on year (4% in the same quarter last year)
- Market Capitalization: $22.25 billion
Company Overview
Originally serving yogis and hockey players, Lululemon (NASDAQ: LULU) is a designer, distributor, and retailer of athletic apparel for men and women.
Revenue Growth
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.
With $11.07 billion in revenue over the past 12 months, Lululemon is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.
As you can see below, Lululemon’s 14% annualized revenue growth over the last three years (we compare to 2019 to normalize for COVID-19 impacts) was solid as it opened new stores and increased sales at existing, established locations.
This quarter, Lululemon reported year-on-year revenue growth of 7.1%, and its $2.57 billion of revenue exceeded Wall Street’s estimates by 3.7%. Company management is currently guiding for a 1.9% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 1.4% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and indicates its products will face some demand challenges. At least the company is tracking well in other measures of financial health.
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Store Performance
Number of Stores
A retailer’s store count often determines how much revenue it can generate.
Lululemon operated 796 locations in the latest quarter. It has opened new stores at a rapid clip over the last two years, averaging 8% annual growth, much faster than the broader consumer retail sector. This gives it a chance to become a large, scaled business over time.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
Same-Store Sales
The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.
Lululemon’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 3.8% per year. This performance suggests its rollout of new stores is beneficial for shareholders. We like this backdrop because it gives Lululemon multiple ways to win: revenue growth can come from new stores, e-commerce, or increased foot traffic and higher sales per customer at existing locations.
In the latest quarter, Lululemon’s same-store sales rose 1% year on year. This was a meaningful deceleration from its historical levels. We’ll be watching closely to see if Lululemon can reaccelerate growth.
Key Takeaways from Lululemon’s Q3 Results
We enjoyed seeing Lululemon beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its EPS guidance for next quarter missed. The company also announced that CEO Calvin McDonald will depart in January, and after a year of lackluster performance, the market seems to be cheering this move. Overall, this print was mixed with a potential new CEO breathing some life into shares. The stock traded up 10.4% to $207.01 immediately following the results.
Should you buy the stock or not? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.
