3 Must-Know Facts About Lululemon Before You Buy the Stock

Lululemon Athletica (NASDAQ: LULU), the pioneer of the athleisure fashion trend, recently reported financial results for its fiscal 2025's third quarter (ended Nov. 2). The company posted revenue of $2.6 billion and earnings per share of $2.59. Both of these figures were ahead of consensus estimates from Wall Street sell-side analysts.

This growth stock has soared 22% in the past month (as of Dec. 17). If you're looking to hop on the Lululemon bandwagon, here are three things you need to know first.

Image source: Getty Images.

Lululemon's brand is its differentiator

Put your consumer cap on, and think of all the different places you could shop when searching for sportswear like yoga pants, shorts, joggers, hoodies, or shoes. The industry is very competitive, with companies targeting customers at all price points with a wide range of options. It's also hard to predict how consumer tastes will change.

That's why it's so important for businesses to differentiate themselves. Lululemon's strategy from the beginning has been to develop products with high-quality fabrics that its customers will value. As a result, the company positions itself at the premium end of the market. For instance, its women's pants sell for well over $100, while one of its men's best-selling shirts can be purchased for $78. These items certainly aren't cheap.

But Lululemon has historically been able to leverage this pricing power. It doesn't depend much on third-party retailers, which gives it tighter control over distribution. The brand's strength is evident in the company's impressive sales per square foot of almost $1,600 in fiscal 2024. When it comes to profitability, during the latest fiscal quarter, Lululemon reported a fantastic gross margin of 55.6% and operating margin of 17%, despite tariffs introducing a headwind.

Financial results differ based on geography

Lululemon's Q3 year-over-year revenue growth of 7% doesn't tell investors the whole story. The bright spot was China, where sales skyrocketed 46%. Lululemon is rapidly opening new stores in the country to target a massive consumer base that is clearly drawn to its merchandise assortment.

Sales in the U.S. fell 3% in the quarter, continuing a weak trend. Consumer confidence has been pressured, and it's at the lowest levels in at least the past decade. People are feeling squeezed by inflationary pressures, something other well-known consumer brands, like Chipotle Mexican Grill and Home Depot, are seeing as well.

That subdued demand in the U.S., also driven by a lack of product newness, could be the main reason why the stock has performed so poorly. Since hitting a peak in December 2023, it's down 59%. Without question, the domestic market still matters the most to the business. Any improvements in the U.S. could work wonders to boost shareholder confidence.

Low expectations can lead to positive surprises

Over the past five years, the S&P 500 has returned 98%, a very favorable outcome. Lululemon, on the other hand, is down a stomach-churning 42%.

That can be blamed on disappointing sales trends in the U.S. But Lululemon's overall revenue growth has slowed. Between fiscal 2019 and 2024, the top line increased at a compound annual growth rate of 21.5%. Between fiscal 2024 and 2027, consensus estimates call for yearly growth of just 4.5%. CEO Calvin McDonald will be stepping down at the end of January, which could be due to those lackluster sales gains.

There's no arguing with the fact that Lululemon's stock is cheap. The forward price-to-earnings ratio of 15.4 is a bargain in today's market environment. Value investors might favor these kinds of opportunities because it signals that market expectations are currently low, creating an easy bar for Lululemon to clear should financial results start to improve.

Lululemon shares will probably remain volatile, but they deserve a closer look.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Home Depot, and Lululemon Athletica Inc. The Motley Fool recommends the following options: short December 2025 $45 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.