Lululemon Athletica — Financial Results

Americas Revenue Is Shrinking While International Growth Carries the Business

The overall 5% revenue growth masks a real problem: the Americas, which still account for 71% of total sales, are shrinking. Lower store traffic, fewer purchases per visit, and weaker average order values all contributed. International markets — especially China Mainland with 20% comparable sales growth — are currently keeping the headline number positive.

Tariffs Punched a $275 Million Hole in Gross Profit

Gross margin (the percentage of revenue left after product costs) fell from 59.2% to 56.6%, a drop of 260 basis points (one basis point equals 0.01%). Tariffs and the removal of the de minimis exemption (a rule that previously allowed lower-cost imports to enter duty-free) cost the company roughly $275 million in gross profit. Lululemon fulfills most U.S. e-commerce orders from Canadian warehouses, so losing the de minimis exemption hit directly. The company has raised some prices and renegotiated with suppliers, but explicitly warns these steps will not fully offset the damage in 2026.

Operating Profit Fell 12%, Dragging Earnings Per Share Down 9%

Higher costs — tariffs, marketing, employee wages, and technology — combined with flat gross profit produced a meaningful decline in profitability. Diluted earnings per share (profit divided across all shares) fell from $14.64 to $13.26. Management expects further margin pressure in 2026.

China Mainland Is a Genuine Bright Spot

China Mainland's segmented operating margin (profit from that region alone, before shared corporate costs) expanded from 37.5% to 40.0%, even as the company invested in 21 new stores and higher marketing spend. Comparable sales rose 20%, driven by e-commerce traffic. This is the one part of the business showing both strong growth and improving profitability simultaneously.

Cash from Operations Dropped Sharply, but the Balance Sheet Remains Solid

Cash generated from day-to-day operations fell by $670 million, partly due to tax payment timing and inventory buildup. Inventory rose 18% to $1.7 billion. The company still holds nearly $1.8 billion in cash with no borrowings outstanding on its $600 million credit line, so near-term liquidity is not a concern.

The Company Returned $1.2 Billion to Shareholders Despite the Headwinds

Lululemon repurchased 5.0 million shares for $1.2 billion during 2025 and received board approval for an additional $1.0 billion buyback. Share repurchases reduce the number of shares outstanding, which mechanically supports earnings per share over time. Continuing buybacks at this scale while profitability is under pressure signals management confidence in the long-term business, though it also reduces the cash cushion available for other uses.