Lululemon maintains 7%–8% full-year revenue growth outlook while targeting strategic tariff mitigation

Earnings Call Insights: lululemon athletica inc. (LULU) Q1 2025 MANAGEMENT VIEW * CEO Calvin R. McDonald reported that "revenue growth for the quarter came in at the high end of our guidance range," emphasizing improved U.S. revenue growth of 2% and continued strength internationally, including 22% constant currency growth in China Mainland. McDonald stated, "Based on our quarter 1 revenue performance and what we're seeing thus far in quarter 2, we are maintaining our revenue guidance for the full year." * McDonald said that lululemon "gained market share across both men's and women's in the premium athletic wear markets in the United States," and highlighted new product launches such as Daydrift, Shake It Out, BeCalm, and the No Line Align, which received a strong guest response and will expand to all stores in the fall.

* International expansion remains a focus, with new store openings in Denmark and Turkey off to a strong start and plans to enter Italy, Belgium, and the Czech Republic later in the year. * McDonald addressed the uncertainty from tariffs, stating, "We are operating from a position of strength. Our brand remains strong, our guest engagement is high, and we offer a compelling value proposition, and we are a highly profitable business." * CFO Meghan Frank stated, "I'm happy we delivered Q1 results that exceeded our expectations. Guests are responding well to our product newness and innovations. And as a result, we are maintaining our revenue guidance for the full year." OUTLOOK * The company continues to expect full-year 2025 revenue in the range of $11.15 billion to $11.3 billion, representing growth of 5% to 7%, and 7% to 8% when excluding the 53rd week from the prior year.

* Regional outlooks remain unchanged: North America revenue anticipated to increase in the low to mid-single-digit range, China Mainland to grow 25% to 30%, and Rest of World segment to increase about 20%. * Frank provided EPS guidance for fiscal 2025 of $14.58 to $14.78, compared to $14.64 in 2024, and projected capital expenditures of $740 million to $760 million. * The company expects mitigation efforts against tariffs to be "most impactful in the second half of the year." * For Q2 2025, revenue is expected in the range of $2.535 billion to $2.56 billion, with EPS guidance of $2.85 to $2.90. FINANCIAL RESULTS * Total net revenue for Q1 rose 7% to $2.4 billion, with comparable sales up 1%. * By region, Americas revenue increased 3%, Canada grew 4%, U.S.

increased 2%, China Mainland rose 21%, and Rest of World was up 16%. * Store channel sales increased 8% and digital revenue increased 6%, contributing $961 million or 41% of total revenue. * Gross margin rose 60 basis points to 58.3% of net revenue, with product margin improvement driven by "lower product costs, improved damages and improved markdowns." * SG&A expenses were $943 million or 39.8% of net revenue. Operating income was $439 million, a margin of 18.5%. * Net income was $315 million, or $2.60 per diluted share.

* Inventory in dollars increased 23%, and in units by 16%, influenced by tariffs and FX. * The company repurchased 1.36 million shares for $430 million in Q1. Q&A * Dana Lauren Telsey, Telsey Advisory Group, asked about mitigation efforts for tariffs and U.S. business category trends. Frank responded, "We are planning to take strategic price increases looking item by item across our assortment...they will be modest in nature." McDonald highlighted balanced newness across categories, with strong performances for Daydrift and No Line Align.

* Janine Marie Hoffman Stichter, Jefferies, inquired about comp drivers and quarter progression. Frank reported, "We did see a decline in store traffic, particularly in the U.S...Conversion trends remained relatively consistent, a little bit of a decline year-over-year." * Brian William Nagel, Oppenheimer, asked why not do more with price in response to tariffs. Frank said, "We're really looking at this as operating from a position of strength, being strategic in our pricing, looking at our elasticities and where we have opportunity." * Matthew Robert Boss, JPMorgan, questioned comp progression and markdowns. Frank clarified, "We did actually see a decline in markdowns in the first quarter...we feel it's prudent to tick up our forecast slightly on the markdown line." * Other questions touched on inventory by geography, newness levels, store growth in China, SG&A, and regional comp trends. Responses often referenced cautious U.S.

consumers, strong newness reactions, and unchanged international growth strategies. SENTIMENT ANALYSIS * Analysts expressed slightly negative sentiment, focusing on tariff impacts, cautious U.S. consumer trends, and markdown guidance, with several questions probing for more detail on mitigation and category performance. * Management maintained a confident tone in prepared remarks, emphasizing strategic flexibility, product innovation, and market share gains, but was more cautious and measured when addressing analyst concerns about traffic and markdowns. Frank and McDonald frequently referenced "position of strength" and "well positioned," while acknowledging macro uncertainty.

* Compared to the previous quarter, the tone shifted slightly more defensive, with more detailed explanations on tariff mitigation and markdown planning. Analysts' tone showed increased concern about margin pressures and U.S. revenue trends compared to Q4. QUARTER-OVER-QUARTER COMPARISON * Revenue growth rate slowed to 7% in Q1 from 13% in Q4, with U.S. revenue growth improving slightly from 1% in Q4 to 2% in Q1.

* Gross margin increased 60 basis points in Q1, compared to a 100 basis point increase in Q4. * The company maintained its full-year revenue guidance, but operating margin outlook decreased from a 100 basis point decline to a 160 basis point decline, driven by tariffs. * Management's confidence in product innovation and international growth remains strong, but language around the U.S. consumer became more cautious. * Strategic priorities continue to focus on product newness and international expansion, with more attention now directed to cost management and tariff mitigation.

RISKS AND CONCERNS * Tariffs present a significant risk, with management planning selective price increases and supply chain efficiencies as mitigation strategies. * Store traffic, especially in the U.S., remains a concern, with management noting cautious consumer behavior and ongoing promotional activity among competitors. * Inventory growth outpaced sales, primarily due to tariffs and FX, but management expressed confidence in inventory composition and newness balance. * Analyst concerns centered on U.S. comps, markdown assumptions, and the effectiveness of mitigation actions.

FINAL TAKEAWAY Lululemon's first quarter 2025 results underscore resilience in international markets and continued guest enthusiasm for new product launches, while U.S. consumer caution and rising tariff pressures pose headwinds. The company is maintaining its 7% to 8% full-year revenue growth outlook and is proactively managing tariffs through targeted price increases and operational efficiencies, expecting mitigation efforts to be most effective in the second half of the year. Management remains focused on innovation, balanced newness, and long-term brand expansion, emphasizing disciplined expense management and strategic agility to navigate evolving market dynamics. Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/lulu/earnings/transcripts] MORE ON LULULEMON * lululemon athletica inc.

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