Lululemon Q3 2025 Earnings Beat Expectations as CEO Calvin McDonald Steps Down

December 11, 2025

Lululemon Athletica (NASDAQ: LULU) just delivered one of its most consequential updates in years.

On Thursday after the bell, the athleisure giant reported fiscal third‑quarter 2025 results that topped Wall Street’s expectations, announced a larger share‑repurchase program, and revealed that long‑time CEO Calvin McDonald will step down at the end of January 2026. ^[1]

The stock jumped on the combination of an earnings beat and leadership shake‑up, even though the underlying story still shows a pressured U.S. business, thinner margins and tariff headwinds. ^[2]

Key takeaways for investors

Earnings beat a very low bar: Q3 revenue rose 7% year over year to $2.6 billion, versus consensus around $2.48 billion. Adjusted EPS came in at $2.59, well ahead of the ~$2.21 analysts were expecting. ^[3]
North America still stumbling: Americas revenue fell 2%, with comparable sales down 5%. International revenue surged 33%, with comps up 18%, highlighting how dependent the growth story has become on China and other overseas markets. ^[4]
Margins and inventory under pressure: Gross margin fell 290 basis points to 55.6%, operating margin dropped to 17%, and inventories climbed 11% in dollars (4% in units) versus last year. ^[5]
Guidance stays cautious: Q4 and full‑year 2025 outlooks imply low single‑digit revenue growth and an ongoing drag from higher U.S. tariffs and the loss of the de‑minimis import exemption, with management baking in roughly $210 million of operating profit impact this year alone. ^[6]
CEO succession in motion: Calvin McDonald will step down as CEO and board member on January 31, 2026, staying on as a senior adviser through March. CFO Meghan Frank and Chief Commercial Officer André Maestrini will serve as interim co‑CEOs while the board, led by new Executive Chair Marti Morfitt, searches for a permanent successor. ^[7]
Buybacks ramp up: Lululemon repurchased 1 million shares for $189 million in Q3 and has expanded its authorization by another $1 billion, leaving roughly $1.6 billion of buyback capacity. ^[8]
Stock still deeply discounted vs history: At around $187 per share, LULU is down roughly 50% over the past year despite still‑solid profitability, trading at about 12–13x trailing earnings and ~15x forward earnings, with an average Street rating of “Hold” and a 12‑month target near $211. ^[9]

1. The backdrop: From star growth story to “show‑me” stock

For most of the last decade, Lululemon was the textbook example of a premium growth compounder. The company surpassed $10 billion in annual revenue for the first time in 2024, more than doubling sales over five years while expanding its store base by nearly 50%. ^[10]

That golden run has hit turbulence in 2025:

Earlier this year, Lululemon cut its outlook despite beating Q1 expectations, triggering a nearly 20% single‑day share price drop as investors digested slowing comparable sales (especially in the Americas) and rising inventories. ^[11]
Analysts and the financial press have flagged a “loss of fashion cohesion” and weak innovation in some women’s lines, particularly in key U.S. stores, while competition from brands like Alo, Vuori and countless copycats has intensified. ^[12]
Founder Chip Wilson has publicly criticized the company’s direction, arguing that the brand has lost its edge and underestimating competition—criticism that gained traction as the stock halved in 2025. ^[13]

Heading into Q3, Lululemon was a classic “battleground stock”: still highly profitable with enviable margins, but facing serious questions about U.S. demand, pricing power under higher tariffs, and whether the brand is still as aspirational as it once was.

2. Q3 FY2025: Beating expectations, not the underlying issues

Headline numbers

For the quarter ended November 2, 2025, Lululemon reported: ^[14]

Revenue: $2.6 billion, up 7% year over year (vs. ~$2.48 billion expected, ~3–4% growth).
Comparable sales: +1% overall (+2% in constant currency).
Americas revenue: –2%, with same‑store sales down 5%.
International revenue: +33%, with comps up 18%.
Gross margin: 55.6%, down 290 bps.
Operating margin: 17.0%, down 350 bps.
Net income: ~$306.8 million, or $2.59 per diluted share, versus $2.87 a year ago (roughly a 10% decline). ^[15]
Store base: 796 company‑operated stores after 12 net openings in the quarter.

Compared with consensus expectations of $2.21 EPS and $2.48 billion in revenue heading into the print, those results qualify as a solid beat. ^[16]

But the quality of the beat matters, and here the picture is mixed: most of the outperformance came from international strength and disciplined cost control, while the core U.S. business and margins remain under pressure.

3. A tale of two geographies: U.S. weakness vs. international momentum

The divergence between Lululemon’s home market and the rest of the world is now stark.

Americas: Revenue fell 2%, while comps slid 5%, confirming that the traffic and merchandising challenges seen in Q1 and Q2 have not yet been fully resolved. ^[17]
International: Revenue jumped 33%, with comparable sales up 18%, continuing the pattern of strong growth in China and other international markets that has carried the brand over the last several years. ^[18]

Vision Capital Fund, which highlighted Lululemon in its Q3 2025 investor letter, framed the issue this way: the U.S. market (roughly 56% of revenue) is effectively flat year over year, but still outperforming larger competitors like Nike by several percentage points, meaning LULU is likely gaining share even as the category slows. Meanwhile, China—about 16% of revenue—remains the biggest growth driver thanks to faster store expansion and higher profitability than the Americas. ^[19]

In other words, Lululemon’s growth story has shifted from “everywhere, all at once” to “international carries the load while the U.S. gets fixed.”

4. Margins, markdowns and the tariff problem

The most worrying part of the quarter is margin compression and what it signals about pricing and product.

Management flagged several pressures: ^[20]

Gross margin fell nearly three full percentage points to 55.6%.
Operating margin slid to 17.0%, an 11% decline in operating income despite higher sales.
Inventories rose 11% in dollars (4% in units), suggesting the company is still working through excess product, even as it trims growth guidance.

Zacks’ recent analysis of Lululemon’s pricing power paints a nuanced picture. U.S. consumers have become more selective, gravitating only to styles that feel genuinely new. Classic franchises like Scuba and Softstreme are seeing fatigue, forcing heavier markdowns and pressuring product margins. ^[21]

To offset sharply higher tariffs and the removal of the de‑minimis import exemption (which once let many small shipments into the U.S. tax‑free), Lululemon is:

Introducing modest price increases on select styles.
Pushing vendors on cost savings and supply‑chain efficiencies.
Tightening expenses elsewhere.

Even with these levers, tariffs are expected to knock roughly 220 basis points off gross margin in fiscal 2025 and create an even larger $320 million headwind in fiscal 2026, according to the Zacks report. ^[22]

Vision Capital’s letter adds a product‑level angle: new lines like Align No Line, Daydrift and BeCalm are resonating with customers, but a heavier mix of bright, seasonal colors in core styles hasn’t translated into incremental demand. Instead, those pieces have tended to end up in clearance, contributing to higher inventory and markdowns. ^[23]

This combination—tariffs, stale hero products and heavier discounting—explains much of the margin pressure investors are now fixated on.

5. Guidance: conservative, or another shoe to drop?

Even after beating expectations in Q3, Lululemon stuck to a cautious tone in its outlook. For Q4 2025, management now expects: ^[24]

Revenue: about $3.50–$3.59 billion, which implies a low single‑digit decline including the extra week in last year’s quarter, or low single‑digit growth excluding that calendar quirk.
EPS:$4.66–$4.76, below the ~$4.97 Street consensus cited ahead of earnings.

For full‑year 2025, Lululemon is guiding to:

Revenue: roughly $10.96–$11.05 billion (around 4% growth, or 5–6% excluding the 53rd week in 2024).
EPS:$12.92–$13.02, an 11–12% decline from 2024, with about $210 million of operating income shaved off by tariffs and related mitigation efforts.

Investing.com notes that the Q4 EPS range falls short of consensus, underscoring that the company is beating estimates for now, but still signaling a bumpy year of adjustment ahead. ^[25]

6. CEO Calvin McDonald steps down – and what that signals

The earnings release was paired with a major leadership announcement: Calvin McDonald will leave his CEO role and board seat on January 31, 2026, staying on as a senior adviser until the end of March. Board chair Marti Morfitt becomes Executive Chair, and CFO Meghan Frank plus Chief Commercial Officer André Maestrini will serve as interim co‑CEOs while an external search is conducted. ^[26]

McDonald’s tenure, which began in 2018, coincided with:

Surging revenue (past $10 billion in 2024).
International expansion, especially in China.
New product categories, including men’s footwear and fresh fabric technology. ^[27]

But recent quarters brought:

Slowing growth in the Americas.
A string of guidance cuts.
Intensifying criticism from the founder and some sell‑side analysts about product cohesion and innovation.

Financial media coverage today framed the CEO change as at least partly a response to mounting investor frustration, even as the board stresses continuity and long‑term strategy. Shares “popped” on the earnings beat and CEO news, suggesting markets view the leadership reset as an opportunity for a strategic refresh. ^[28]

For investors, the key question is whether the new CEO—whoever that is—leans into Lululemon’s premium positioning and design heritage, or moves more aggressively toward mass‑market growth and discounting.

7. What the previews were saying before today

The articles you flagged line up neatly with what the market was expecting before Q3 dropped.

“Q3 earnings: what to expect”

Pre‑earnings previews from outlets like StockStory, Benzinga and others painted a cautious picture: analysts were looking for roughly 3–4% revenue growth to $2.48 billion and a 23% EPS decline to $2.21, a sharp slowdown versus last year’s high‑teens growth. ^[29]

Those pieces also emphasized:

Two straight quarters of weaker U.S. trends and rising inventories.
Q2 revenue just missing expectations (by about 0.5%) and a meaningful full‑year guidance cut. ^[30]
A Wall Street consensus that had migrated from strong “Buy” territory to a more cautious “Hold” on LULU, with expected volatility around the print. ^[31]

Viewed through that lens, Q3 looks less like a heroic comeback and more like a company clearing a low bar.

8. Seeking Alpha: “Don’t let the setup fool you”

The Seeking Alpha article “lululemon’s Earnings: Don’t Let The Setup Fool You” captured the skeptical side of the debate going into earnings. Summaries of the piece highlight several key arguments: ^[32]

Stock vs. business divergence: LULU shares are down about 50% in 2025, even though the company is still generating healthy profits and strong free cash flow.
Growth deceleration: Top‑line growth has slowed into the 7–8% range, far below the 20%+ rates investors once paid a premium for.
Macro and consumer headwinds: Softer discretionary spending, tariff uncertainty and changing fashion tastes are creating high operational risk.
Sentiment reset: With valuation multiples compressed and several quarters of negative earnings revisions (22 downward EPS revisions in the last 90 days), much of the “easy optimism” has been priced out. ^[33]

The author’s bottom line: the setup might look attractive on valuation alone, but the fundamental risks—especially in the U.S. and around margins—mean investors shouldn’t be lulled (pun intended) into complacency just because the stock is cheaper.

Q3’s results don’t fundamentally contradict that view: yes, the beat helps, but the core concerns (tariffs, U.S. softness, margin pressure) are still very much on the table.

9. Vision Capital Fund: still bullish on the brand

Vision Capital Fund’s Q3 2025 investor letter, highlighted by Insider Monkey, offers a more constructive long‑term take: ^[34]

The fund acknowledges weak 1Q25 and 2Q25 results, with Q2 revenue growth just 7% and U.S. growth near 0%, but notes that Lululemon is still gaining share versus larger rivals.
China remains the standout, with a mid‑20s revenue growth outlook and significantly higher profitability than the Americas, supported by faster store openings and strong brand traction.
The letter praises newer innovations like Align No Line, Daydrift and BeCalm, while critiquing the overuse of bright seasonal colors that don’t sell through and end up heavily discounted.
The fund appears to view current margin pressure and inventory clean‑up as fixable execution issues, not a broken business model.

Vision Capital’s stance underscores why some hedge funds still view LULU as a high‑quality franchise in temporary disarray rather than a structurally broken story.

10. How the market is pricing LULU now

Post‑earnings, Lululemon sits in an unusual spot:

Share price: ~$187.
52‑week range: about $159–$423, underlining how brutal the drawdown has been.
Trailing EPS: roughly $14.7, implying a P/E near 12–13x.
Forward P/E: ~15x, based on consensus estimates.
Analyst stance: Around 26 analysts rate the stock on average as a “Hold” with a 12‑month target near $210–$211, implying low‑teens percentage upside. ^[35]

Zacks notes that Lululemon’s forward P/E multiple now sits below the broader apparel retail group, and earnings estimates for 2025 and 2026 have actually ticked higher over the past week as analysts recalibrate expectations post‑guidance cut. ^[36]

In short: the market is no longer paying “luxury growth” multiples for LULU, but it also isn’t treating it like a busted turnaround. It’s squarely in “prove‑it” territory.

11. What to watch next

For readers following Lululemon after today’s news, a few threads will define the story into 2026:

U.S. comp recovery: Do comparable sales in the Americas move back toward positive territory as new product hits shelves, or do negative mid‑single‑digits become the new normal?
Product innovation and cohesion: Can the brand bring freshness without diluting its identity—revitalizing key franchises like Align, Scuba and Softstreme while avoiding markdown‑driven volume? ^[37]
Tariff and margin management: How effectively can Lululemon offset tariff headwinds with selective pricing, vendor savings and supply‑chain efficiency, while preserving its premium positioning? ^[38]
CEO selection and strategy reset: The board’s choice of successor—and how quickly that leader sets a clear plan for the U.S. business—will be a major sentiment driver. ^[39]
International growth durability: Can China and other international markets maintain double‑digit growth without sacrificing margins or over‑expanding the store base? ^[40]
Capital allocation: With roughly $1.6 billion of buyback authorization left, how aggressively will management repurchase shares at these compressed valuations? ^[41]

Bottom line

Lululemon’s Q3 2025 print answered one big question—near‑term execution is better than feared—but left the deeper ones unresolved.

The core U.S. business still needs a product and traffic reboot, tariffs are chewing into margins, and leadership is in transition. At the same time, the company remains a highly profitable global brand with strong international momentum, solid free cash flow and a now‑reasonable valuation.

For investors watching LULU from the sidelines, Q3 didn’t close the debate. It simply set the stage for the next act.

Note: This article is for informational purposes only and does not constitute investment advice. Always do your own research or consult a qualified financial adviser before making investment decisions.

References

Lululemon Q3 2025 Earnings Beat Expectations as CEO Calvin McDonald Steps Down – What It Means for LULU Stock