After Getting Crushed Earlier This Year, Lululemon Stock Is Soaring. Time to Buy?

Lululemon reported fiscal Q3 revenue of $2.6 billion, up 7% year-over-year, with the Americas down 2% (comps -5%) while international revenue surged 33% (comps +18%), led by China where sales rose 46% to $465.4 million (comps +24%). Management raised full-year revenue guidance to $10.96–11.05 billion and expanded the buyback program after repurchasing $189 million in Q3; the shares have rallied over 20% in the last 30 days but remain down over 45% YTD and trade at roughly 16x FY25 EPS guidance of $12.92–13.02. Profitability is under pressure—gross margin fell 290bps to 55.6% and operating margin fell 350bps amid higher tariffs and markdowns, inventories increased 11% to $2.0 billion, and an announced CEO transition adds near-term uncertainty, making near-term upside dependent on holiday demand and a U.S. sales rebound.

Analysis

Lululemon reported fiscal Q3 revenue of $2.6 billion, up 7% year‑over‑year, with a pronounced geographic split: Americas revenue fell 2% (comps -5%) while international revenue surged 33% (comps +18), led by China Mainland where sales rose 46% to $465.4 million (comps +24) and "rest of world" revenue increased 19% to $367.2 million. The international acceleration—an improvement from Q2 international growth of 22%—explains the stock rally of more than 20% over the last 30 days despite the shares still being down over 45% year‑to‑date. Management raised full‑year revenue guidance to $10.96–11.05 billion (implying ~4% growth, or 5–6% ex the 53rd week) and expanded buybacks after repurchasing 1.0 million shares for $189 million, leaving roughly $1.6 billion authorized as of Dec. 11.

Profitability and inventory dynamics pose key risks: gross margin contracted 290 basis points to 55.6% and operating margin fell 350 basis points to 17% with management citing higher tariffs and markdowns, while inventories increased 11% to $2.0 billion, raising the prospect of promotional activity if holiday demand disappoints. The announced CEO transition adds near‑term governance and execution uncertainty heading into 2026. With shares trading near ~16x FY25 EPS guidance of $12.92–13.02—well below the S&P 500 P/E >25—the stock presents a valuation case, but upside depends on holiday results, margin stabilization and confirmation that U.S. demand can recover.

Key Decisions for Investors

• Consider initiating a small, tactical long position to capture international momentum and valuation upside (shares trading ~16x FY25 EPS) but size exposure conservatively given U.S. comps weakness and a pending CEO transition
• Monitor near‑term catalysts closely—holiday sales cadence, weekly comp trends, gross and operating margin trajectory, inventory flow and management commentary on tariffs/markdowns—and be prepared to trim or hedge if inventories force deeper promotions or margins deteriorate further
• Treat buybacks and raised guidance as positive catalysts but avoid full conviction until sustained improvement in U.S. demand is demonstrated; consider protective hedges (e.g., puts or collars) if holding a material position