Lululemon Athletica (NASDAQ: LULU) delivered Q1 2025 financial results that edged past Wall Street forecasts. Net revenue climbed 7% YoY to $2.37 billion, widening modestly from the prior quarter’s holiday-boosted $3.21 billion and inched ahead the $2.36 billion the analysts expected.
Gross profit also rose 8% to $1.38 billion, lifting gross margin 60 basis points to 58.3%. The good news ended there.
Selling, general and administrative expense jumped 12% to $943 million, leaving operating income almost flat at $439 million and slicing operating margin by 110 bp to 18.5%.
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Net income slipped 2% to $315 million, while diluted EPS inched up 2% to $2.60.
“I’m not happy with US growth,” CEO Calvin McDonald conceded, pointing to “cautious and intentional” domestic shoppers.
Comparable sales rose just 1%, dragged down by a 2% decline in the Americas that outpaced a 6% international gain. On a constant-currency basis, revenue advanced 8%.
But the firm cut the full-year earnings forecast to $14.58–$14.78 per share, versus $14.95–$15.15 previously, blaming an extra 110 bp of gross-margin pressure tied to tariffs.
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Working capital outflows tied to inventory growth flipped operating cash flow to a $119 million deficit from a $128 million surplus a year earlier. After $107 million in capital spending and the hefty buy-back, free cash flow was a deep $576 million negative, slashing cash on hand by 33% sequentially to $1.33 billion—its lowest level since 2022.
Inventories ballooned 23% year on year to $1.65 billion, a 16% unit increase that looks perilous against soft US demand and looming price hikes. CFO Meghan Frank said in the earnings call that the company is looking at “strategic price increases” to manage tariff-induced price hikes.
“Price increases will be modest and item specific,” she told analysts, adding that they will begin late in the current quarter.
Lululemon ended the quarter with 770 company-operated stores—net three more than February—and total square footage inched up 1% to 3.42 million. International markets—now 36 % of revenue—continued to outpace North America, with China Mainland sales up 21 % in dollars and 22 % in constant currency.
Management reiterated its full-year revenue target of $11.15–$11.30 billion, but now expects second-quarter EPS of just $2.85–$2.90 versus consensus $3.29. The updated outlook assumes the current 30% tariff on China and a fresh 10% levy on the rest of its supply chain—a cost burden Frank said cannot be fully offset despite selective price hikes.
Lululemon last traded at $265.27 on the NASDAQ, plummeting 19.8% on Friday following the release of the results.
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