Lululemon Athletica Inc. Q3 FY2025 earnings call

Calvin's Departure

• Calvin McDonald will step down as CEO on January 31, 2026, after 7 years. Marti Morfitt will serve as Executive Chair, and Meghan Frank and Andre Maestrini will be co-CEOs until a new CEO is appointed.

Q3 Results

• U.S. guest metrics consistent, but opportunity to increase visit frequency and spend with high-value guests. International momentum strong, with China Mainland and Rest of World showing growth.

Thanksgiving Performance

• Positive results during Thanksgiving, with traffic and new product response, but trends slowed post-Thanksgiving.

Action Plan

• Focus on 3 pillars:
  • Product Creation: Reenergizing product engine, reducing time to market (mainline product development process reduced from 18-24 months to 12-14 months).
  • Product Activation: Elevating store and digital experience, engaging high-value guests (updating membership program, partnership with Amex Platinum Card).
  • Enterprise Efficiency: Mitigating tariff impact through strategic pricing, supply chain initiatives, and enterprise-wide savings.

In the Americas, total revenue declined 2% in Q3, with the U.S. down 3% and Canada negative 1%. From a product standpoint, performance activities led by run and train grew, and outerwear had strong double-digit growth. Internationally, revenue increased 33%, fueled by 46% growth in China Mainland (47% on a constant currency basis) and 19% growth in the Rest of World (constant currency basis). China Mainland revenue is expected to be at or better than the high end of the 20% to 25% revenue growth range for the year, excluding the 53rd week.

Full Year 2025

• Revenue expected $10.96B-$11.05B (4% growth vs 2024, 5%-6% excluding 53rd week). China Mainland at or above high end of 20%-25% growth. Gross margin decrease ~270 basis points. SG&A deleverage ~120 basis points. EPS $12.92-$13.02.

Q4 2025

• Revenue $3.5B-$3.59B (negative 3%-negative 1% vs 2024). Gross margin decrease ~580 basis points. SG&A rate deleverage ~100 basis points.

• Impact on gross margin due to increased tariffs and removal of de minimis exemption. Need for ongoing mitigation efforts through vendor negotiations, DC network efficiency, and expense management.

Q: U.S. demand and product assortment timeline?

A: Q3 U.S. demand as expected, post-Thanksgiving pullback reflected in guidance. New product activation starts in Q1 2026.

Q: Product assortment changes and operating margins?

A: Margin puts and takes in 2026, negative factors outweigh positives, but efficiency efforts ongoing.

Q: Segment performance and new product design?

A: Performance categories growing, core franchises updated with innovation, in-store visual merchandising tests showing good results.

Q: Amex partnership impact?

A: Pleased with new guests, partnership profitable but small impact on revenue.

Q: Tariff de minimis progress?

A: Progress made, but specific updated figures not provided, focus on vendor negotiations and DC network efficiency.