Lululemon, the prominent athleisurewear brand, has recently released its fourth-quarter and full-year earnings report, showcasing impressive results that surpassed expectations. Annual sales reached a milestone, surpassing $10 billion for the first time, totaling $10.6 billion, marking a 10% year-over-year growth. In the fourth quarter alone, ending on Feb. 2, the brand experienced a 13% increase in revenue, amounting to $3.6 billion, along with a 14% rise in income from operations, reaching $1 billion.
Despite this strong performance, concerns arose on Wall Street following the company’s conservative guidance for the future. Lululemon’s shares plummeted by 14% upon market opening, ultimately becoming the worst-performing stock on the S&P 500 for the day.
The brand’s outlook for the first quarter of 2025 anticipates revenues between $2.335 billion and $2.355 billion, reflecting a 6% to 7% growth, with full-year projections aiming for $11.15 billion to $11.3 billion, indicating a 5% to 7% increase. However, these forecasts might not be sufficient for Lululemon to achieve its ambitious “Power of Three x2” strategic plan, which aimed to double revenues from $6.25 billion in 2021 to $12.5 billion by 2026.
Despite the company’s commitment to executing this plan, reaching the ultimate goal seems to be slipping away. Financial analysts at Jefferies project a mere 2% revenue growth this year, estimating revenues to reach $11.1 billion by fiscal 2026, falling short of the company’s target.
One of the most concerning aspects lies in the brand’s performance in the Americas, where 75% of its revenues are generated. Year-end revenues in this region declined by 1% when excluding the additional 53rd trading week, remaining flat in the fourth quarter. While U.S. annual sales saw a 2% increase to $6.5 billion, comparable sales remained unchanged, with Canada experiencing a 10% rise to $1.4 billion. Collectively, the Americas recorded a 4% growth, amounting to $7.9 billion.
CEO Calvin McDonald referenced a survey conducted in the U.S. that highlighted consumer spending concerns due to rising inflation and economic uncertainties, leading to decreased traffic across the retail industry. The brand heavily relies on its U.S. stores, with over half of its 720 company-owned stores located in the States. Although Lululemon expanded its U.S. store count to 374, up from 367 in 2023, it added 17 stores in Mexico late last year, bringing the total stores in the Americas to 462. Additionally, plans to open 40 to 50 new stores in 2025 include 10 to 15 in the Americas.
Lululemon’s growth strategy, known as the “Power of Three x2,” introduced in 2022 by CEO McDonald, aimed to double menswear and e-commerce revenues and quadruple international revenues relative to 2021 figures. As of 2024, the brand remains nearly $2.7 billion away from the $12.5 billion target, with menswear revenues hitting $2.6 billion, e-commerce climbing to $4.6 billion, and international sales requiring significant growth to reach the $3.8 billion goal.
While Lululemon emphasizes innovation and newness leading into 2025, acknowledging macroeconomic and geopolitical uncertainties, competition in the athleisure market poses a significant challenge. Rivals like Vuori and Alo Yoga are gaining traction, offering competitive styles at lower price points. Nike, a dominant force in the apparel market, presents another formidable opponent to Lululemon’s market share.
CEO McDonald highlighted the need to boost brand awareness, particularly in key markets where awareness levels are lower. Despite relatively strong brand recognition in the U.S., raising awareness further could be instrumental in driving sales. However, challenges persist as the brand’s perception of being expensive may deter customers from frequenting its stores.
Amidst escalating competitive pressures, market uncertainties, and evolving consumer preferences, Lululemon faces a complex landscape that demands strategic navigation to sustain growth and relevance in the dynamic retail sector.