Lululemon (LULU)

Athletic apparel retailer Lululemon (NASDAQ:LULU) reported revenue ahead of Wall Street’s expectations in Q4 CY2025, but sales were flat year on year at $3.64 billion. On the other hand, next quarter’s revenue guidance of $2.42 billion was less impressive, coming in 2.1% below analysts’ estimates. Its GAAP profit of $5.01 per share was 4.9% above analysts’ consensus estimates.

Company Overview

Originally serving yogis and hockey players, Lululemon (NASDAQ:LULU) is a designer, distributor, and retailer of athletic apparel for men and women.

Apparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.

Competitors in the athletic apparel industry include Nike (NYSE:NKE), Under Armour (NYSE:UA), and Columbia Sportswear (NASDAQ:COLM).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $11.1 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 sales grew at a decent 11% compounded annual growth rate over the last three years as it opened new stores and increased sales at existing, established locations.

This quarter, Lululemon’s $3.64 billion of revenue was flat year on year but beat Wall Street’s estimates by 1.8%. Company management is currently guiding for a 1.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 3.3% over the next 12 months, a deceleration versus the last three years. We still think its growth trajectory is satisfactory given its scale and indicates the market is baking in success for its products.

Number of Stores

A retailer’s store count often determines how much revenue it can generate.

Lululemon sported 811 locations in the latest quarter. Over the last two years, it has opened new stores at a rapid clip by averaging 7.6% annual growth, among the fastest in the 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 healthy for a retailer over the last two years. On average, the company has grown its same-store sales by a robust 2.6% per year. This performance suggests its rollout of new stores could be beneficial for shareholders. When a retailer has demand, more locations should help it reach more customers and boost revenue growth.

In the latest quarter, Lululemon’s same-store sales rose 3% year on year. This performance was more or less in line with its historical levels.

We prefer higher gross margins because they not only make it easier to generate more operating profits but also indicate product differentiation, negotiating leverage, and pricing power.

Lululemon has best-in-class unit economics for a retailer, enabling it to invest in areas such as marketing and talent. As you can see below, it averaged an elite 57.9% gross margin over the last two years. That means for every $100 in revenue, only $42.12 went towards paying for inventory, transportation, and distribution.

Lululemon produced a 54.9% gross profit margin in Q4 , marking a 5.5 percentage point decrease from 60.4% in the same quarter last year. Lululemon’s full-year margin has also been trending down over the past 12 months, decreasing by 2.6 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to discount products and higher input costs (such as labor and freight expenses to transport goods).

Lululemon has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer retail business, boasting an average operating margin of 21.7%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Lululemon’s operating margin decreased by 3.8 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q4, Lululemon generated an operating margin profit margin of 22.3%, down 6.5 percentage points year on year. Since Lululemon’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Lululemon’s EPS grew at 25.8% compounded annual growth rate over the last three years, higher than its 11% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

In Q4, Lululemon reported EPS of $5.01, down from $6.14 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 4.9%. Over the next 12 months, Wall Street expects Lululemon’s full-year EPS of $13.30 to shrink by 6.5%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Lululemon has shown robust cash profitability, driven by its attractive business model that enables it to reinvest or return capital to investors. The company’s free cash flow margin averaged 8.6% over the last two years, quite impressive for a consumer retail business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Lululemon’s five-year average ROIC was 46.8%, placing it among the best consumer retail companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Lululemon is a profitable, well-capitalized company with $1.81 billion of cash and $1.80 billion of debt on its balance sheet. This $8.76 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see 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 and its full-year EPS guidance fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 2.1% to $156.79 immediately after reporting.

Updated: March 17, 2026 at 10:58 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Lululemon, you should also grasp the company’s longer-term business quality and valuation.

There are several reasons why we think Lululemon is a great business. First of all, the company’s revenue growth was decent over the last three years. On top of that, its new store openings have increased its brand equity, and its admirable gross margins are a wonderful starting point for the overall profitability of the business.

Lululemon’s P/E ratio based on the next 12 months is 12.9x. Looking at the consumer retail landscape today, Lululemon’s fundamentals really stand out, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $204.63 on the company (compared to the current share price of $156.68), implying they see 30.6% upside in buying Lululemon in the short term.