Flat US Revenues And Tariff Hikes Will Squeeze Margins

Key Takeaways

• Intensifying market saturation, brand fatigue, and shifting consumer trends threaten lululemon's revenue growth, pricing power, and margin stability.
  
• International expansion and cost headwinds, including tariffs and regulatory changes, increase the risk of long-term earnings and revenue stagnation.
  
• Strong international growth, digital strength, product innovation, and disciplined global expansion position lululemon for sustained long-term growth despite near-term margin challenges.

Catalysts

Designs, distributes, and retails technical athletic apparel, footwear, and accessories for women and men under the lululemon brand in the United States, Canada, Mexico, China Mainland, Hong Kong, Taiwan, Macau, and internationally.

• Slowing growth in key North American markets signals rising saturation, with management guiding to flat or declining revenues in the U.S. and Canada-even as international expansion efforts face early-stage market risks and volatility; this undermines long-term revenue growth potential.
  
• Shifting consumer behavior toward reduced spending in premium athleisure, elevated selectivity, and increased fatigue with core casual product franchises means the company relies heavily on introducing successful innovation in the face of waning brand differentiation and competitive pressures, increasing the risk of weaker net revenue and lower customer conversion over time.
  
• Heightened price transparency in digital retail, ongoing proliferation of direct-to-consumer brands, and intensifying competition from both established and disruptive entrants erodes lululemon's historical pricing power, leading to higher markdowns and compressing gross margins in the future.
  
• Removal of the de minimis exemption for cross-border e-commerce shipments, combined with elevated tariff rates, directly increases cost of goods sold by hundreds of millions of dollars annually and cannot be fully offset through vendor negotiations or price increases; this drives structural margin erosion and significantly reduces future earnings power.
  
• A rising consumer focus on anti-consumerism and shifting demographics, particularly as core younger consumers age and growth plateaus, threatens sustained demand for premium activewear and could accelerate a migration to secondhand markets-exposing the company to additional long-term revenue stagnation and gross margin volatility.

lululemon athletica Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on lululemon athletica compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming lululemon athletica's revenue will grow by 2.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 16.4% today to 12.5% in 3 years time.
• The bearish analysts expect earnings to reach $1.5 billion (and earnings per share of $13.06) by about September 2028, down from $1.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.6x on those 2028 earnings, down from 10.9x today. This future PE is lower than the current PE for the US Luxury industry at 19.8x.
• Analysts expect the number of shares outstanding to decline by 3.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.05%, as per the Simply Wall St company report.

lululemon athletica Future Earnings Per Share Growth

Risks

• lululemon continues to experience strong international growth, particularly in China and other Rest of World markets, with China Mainland revenue increasing 25% and 19% growth in Rest of World, significantly expanding the addressable market and supporting strong revenue growth in the long term.
  
• The company is investing in product innovation and creative leadership, aiming to increase new styles as a percentage of the assortment from 23% to approximately 35% by spring 2026, which could drive renewed growth in the casual and lounge categories and potentially increase both average order value and net revenue.
  
• Digital sales are robust, with e-commerce revenues rising 9% and comprising 39% of total revenue, reflecting the brand's capability to capture more customer spend online and leverage industry-wide momentum towards digital and omni-channel retail, supporting margin resilience and broader market access.
  
• lululemon's brand health remains strong, marked by a loyal customer base, growth and retention across all age demographics, and a 30 million-member loyalty program, all of which boost customer lifetime value and support long-term earnings power.
  
• The company's disciplined capital investment, expansion of store footprint in high-growth international regions, and focus on technological advancements-such as supply chain agility and AI integration-may unlock operating efficiencies and enduring earnings growth, even while addressing near-term margin pressures.

Valuation

• The assumed bearish price target for lululemon athletica is $117.16, which represents two standard deviations below the consensus price target of $206.17. This valuation is based on what can be assumed as the expectations of lululemon athletica's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $303.0, and the most bearish reporting a price target of just $100.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $11.8 billion, earnings will come to $1.5 billion, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $163.9, the bearish analyst price target of $117.16 is 39.9% lower.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.