Lululemon shares rise on better-than-expected Q3 earnings

Lululemon shares jumped about 7% after the close as Q3 revenue came in at $2.6 billion, up 7% year-over-year and above the $2.49 billion consensus, while EPS beat at $2.59 versus ~$2.21 expected. Comparable sales rose 1% (2% constant dollars) with international strength—international comps +18% and revenue +33%—offsetting a 5% decline in the Americas; the company added 12 net stores for a total of 796. Despite the top-line beat, gross margin compressed 290 basis points to 55.6%, gross profit was $1.4 billion, and operating income fell 11% to $435.9 million (operating margin down 350 bps to 17%), prompting management to emphasize remediation of the U.S. business and expect results of that action plan to show in 2026.

Analysis

Lululemon reported Q3 revenue of $2.6 billion, a 7% year-over-year increase that beat the $2.49 billion consensus, and EPS of $2.59 versus roughly $2.21 expected; the stock rose about 7% after the close. The headline beat signals underlying strength but masks a bifurcated performance across channels.

Comparable sales rose 1% overall (2% on a constant-dollar basis), driven by an 18% increase in international comparable sales and a 33% rise in international revenue, while the Americas comps fell 5% and Americas revenue declined 2%. The company added 12 net company-operated stores in the quarter, taking total store count to 796.

Profitability metrics weakened: gross profit was $1.4 billion but gross margin compressed 290 basis points to 55.6%, operating income fell 11% to $435.9 million and operating margin declined 350 basis points to 17%. Management emphasized an action plan to improve the U.S. business and said it expects to see the impact in 2026, making execution and timing the central near-term drivers for the stock.

The report therefore presents a growth-versus-margin trade-off: international momentum supports top-line upside, while U.S. softness and margin erosion create execution risk and potential pressure on near-term earnings until the 2026 remediation shows results.

Key Decisions for Investors

• It may be prudent to wait for evidence of U.S. comparable-sales stabilization and gross-margin improvement before materially adding to positions,
• Investors with conviction in sustained international growth can consider selective accumulation given +33% international revenue and +18% international comps, but size positions modestly due to margin compression and operating-profit decline,
• Monitor quarterly updates for U.S. action-plan progress, sequential trends in gross and operating margins, and any commentary on promotional/markdown activity as key triggers to reassess positioning