Lululemon Athletica Inc. recently unveiled its second-quarter fiscal year 2025 financial performance, highlighting earnings per share that surpassed internal forecasts, though overall revenue did not meet anticipations. The athletic apparel giant primarily attributes these outcomes to a softer market in the United States and the financial headwinds presented by evolving trade tariffs, specifically the removal of the de minimis exemption. Internally, the company's detailed product analysis points to a significant issue: an over-reliance on established core casual wear lines that are no longer resonating with consumers as they once did. In response, Lululemon is initiating a comprehensive strategic overhaul, prioritizing the diversification of its product offerings with a greater emphasis on new and innovative designs, alongside enhancing its supply chain's responsiveness. These forward-looking adjustments are projected to yield substantial improvements in the company's financial and market standing by 2026.
During the recent earnings conference call, Calvin McDonald, Lululemon's Chief Executive Officer, alongside Meghan Frank, the Chief Financial Officer, provided an in-depth account of the company's second-quarter performance. They highlighted that while the earnings per share demonstrated resilience, the total revenue growth of 7% (or 6% in constant currency) to $2.5 billion fell short of expectations, largely due to a downturn in North America. Specifically, revenue in the Americas saw a modest 1% increase, with comparable sales declining by 3%. The United States experienced a flat revenue performance, while Canada recorded a 1% increase. In contrast, China mainland continued its robust growth trajectory, with revenue soaring by 25% (24% in constant currency) and comparable sales up 16%. The rest of the world segment also delivered strong results, with revenue growing by 19% (15% in constant currency) and comparable sales up 9%. These regional disparities underscore the differing market dynamics Lululemon is navigating globally.
A critical revelation from the earnings call was Lululemon's self-assessment of its product strategy, particularly concerning its U.S. business. McDonald acknowledged that the company had allowed its product lifecycles, especially within its "lounge and social" categories, to extend too long, leading to a predictable and less exciting offering for consumers. This stagnation contrasts sharply with the continued success of its performance apparel, where Lululemon has maintained market share despite a sector-wide decline. The company plans to significantly increase the proportion of new styles in its assortment from the current 23% to approximately 35% by next spring. This shift is aimed at injecting freshness and innovation, particularly in the casual wear segments that constitute about 40% of its product mix. The leadership team also discussed improvements in supply chain agility, including working more closely with vendors and enhancing "fast track" design capabilities to reduce lead times, enabling quicker responses to consumer demand and successful product trends. The appointment of Ranjou Das as the new Chief AI and Technology Officer further underscores Lululemon's commitment to leveraging technology for product innovation, market speed, and personalized guest experiences.
The discussion also heavily featured the impact of external economic factors, most notably the new tariffs and the removal of the de minimis provision in the U.S. The company now anticipates a substantial 300 basis point decrease in gross margin for the full fiscal year 2025, a significant jump from the earlier projection of a 110 basis point decrease. This revised outlook is largely driven by a 220 basis point impact from increased tariffs, with the removal of the de minimis exemption alone accounting for approximately 170 basis points. Meghan Frank outlined strategies to mitigate these costs, including strategic pricing adjustments, vendor negotiations, and company-wide expense savings initiatives. Despite these challenges, Lululemon remains committed to its long-term growth objectives, emphasizing prudent investment in growth initiatives and maintaining brand health. The company expects these measures, combined with its revamped product strategy, to significantly improve business performance starting in 2026, positioning Lululemon for sustained global growth.
In sum, Lululemon is actively confronting current market difficulties by critically evaluating its product strategy and operational efficiency. The company's leadership is implementing decisive changes to invigorate its product assortment, especially in the U.S. market, and to enhance its supply chain responsiveness. These strategic shifts, coupled with efforts to mitigate tariff impacts, demonstrate a clear and determined path forward. The objective is to capitalize on a deeply loyal customer base and a strong brand presence, paving the way for renewed growth and market leadership in the dynamic apparel industry.