Lululemon Athletica (NASDAQ: LULU) stock got torn up on Friday, tumbling 20.2% through 11:55 a.m. ET despite beating earnings (barely) last night.
Heading into the company’s Q1 2025, analysts expected Lululemon to post $2.59 per share in profit on $2.37 billion in quarterly sales. Lululemon nailed the revenue target, and beat by the proverbial penny, with $2.60 per share earned.
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Lululemon’s Q1 earnings
Sales grew 7% year over year, but same-store sales were up only 1%. Gross profit margins grew, but operating margins sank — down 110 basis points to 18.5%. Still, on the bottom line, Lulu managed to grow its earnings by about 2%, to the aforementioned $2.60 per share.
Earnings growth did lag sales growth significantly, however, because of the slimmer profit margin. Yet even so, CFO Meghan Frank emphasized the fact that sales did grow faster, and said she was “pleased with the start to our second quarter” as well.
Is Lululemon stock a buy?
But should she be? Turning to guidance, Lululemon says Q2 sales will grow 7% or 8% to as high as perhaps $2.56 billion, with earnings between $2.85 per share and $2.90. Problem is, up on Wall Street, they wanted to hear Lulu promise $3.32 per share — and that’s clearly not going to happen.
Worse, full-year guidance sees sales growth slowing to as little as 5% to 7% ($11.15 billion to $11.3 billion), and earnings are supposed to range from $14.58 to $14.78 per share. Analysts blame President Trump’s tariffs policy for the weakening sales outlook. But whoever’s to blame, the results aren’t encouraging.
Valued at about 18 times current-year forecast earnings, Lululemon stock costs too much for mid-single-digit growth. For the time being, I’m afraid it’s probably a “sell.”
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.
