Lululemon Athletica's (LULU 0.98%) stock has been a lemon for most of 2025, but the stock has rallied over the past month. The biggest jump came after the company reported solid fiscal Q3 results and announced that it was looking for a new CEO. Even after its gains, the stock is still down about 45% on the year, as of this writing.
Let's take a closer look at the brand's results and prospects to see if the stock can continue to rebound.
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Looking for a turnaround
The past year has been a difficult one for Lululemon, as the company has twice lowered its full-year guidance and its CEO has admitted mistakes, including letting product lines get stale and not moving quickly enough. This has led the company's founder and largest shareholder, Chip Wilson, to call for changes at the top. Wilson will finally get his wish with current CEO Calvin McDonald set to step down at the end of January.
The change in leadership will come at a time when the athleisure apparel has become more competitive, with upstarts like Alo and Vuori both making inroads. At the same time, there has also been a fashion shift toward looser and more varied silhouettes.
Turning to Lululemon's results, the quarter was generally solid. Overall revenue jumped 7% year over year to $2.57 billion, coming in ahead of the $2.48 billion consensus. Adjusted earnings per share (EPS) sank 11% to $2.59, but came in solidly above the $2.25 consensus.
Growth was once again powered by international markets. Its international revenue jumped 33%, with comparable-store sales climbing 18%. China helped lead the way, with sales surging 47% to $465.4 million, and same-store sales up 25%. Rest-of-world sales rose 19% to $367.2 million, as comparable-store sales increased by 9%.
However, the retailer's North American operations continue to struggle. Americas' revenue fell 2% to $1.7 billion, while same-store sales dropped 5%. At the same time, the company is facing intense margin pressure from tariffs.
Gross margin decreased by 290 basis points to 55.6%, while it forecast Q4 gross margin to decline by 580 basis points. It continues to try and negotiate with vendors to reduce the impact.
Inventory levels, meanwhile, increased by 11% year over year to $2 billion, and were up 4% on a unit basis. Inventory is an important metric to watch for struggling retailers and brands, because big increases above sales growth can lead to more markdowns and sales. I wouldn't say inventory levels are a problem yet.
Looking ahead, Lululemon upped its guidance for the fiscal year. It now sees sales coming in $10.96 billion to $11.05 billion, representing growth of 4%, and adjusted EPS in a range of $12.92 to $13.02. That's up from prior guidance for adjusted EPS of $12.77 to $12.87 on sales of $10.85 billion to $11 billion.
For fiscal Q4, Lululemon projected sales of between $3.5 billion and $3.585 billion and adjusted EPS of between $4.66 and $4.76. The sales guidance equals a decline of 3% to 1%, or growth of 2% to 4%, when taking into account that last year had an extra week.
NASDAQ: LULU
Key Data Points
Can the stock continue to rebound?
While Lululemon turned in solid results, I think investors were most excited about a change of direction at the top. However, the company has not found a new CEO yet, so we don't know who will take over and what his or her background is.
While the company is doing well in international markets, especially China, it needs to fix its North American business against a backdrop of increased competition and a fashion shift. That may not be an easy task. However, if there has simply been a shift in what athleisure looks like and not a shift away from the category, the company can be turned around under a strong fashion-first leader.
From a valuation standpoint, Lululemon now trades at a forward price-to-earnings (P/E) ratio of around 16 times next year's analyst estimates. That's not expensive, but how the stock performs from here will largely come down to its new CEO and the direction he or she takes the company.
I think investors can take a small, speculative position in this athletic brand stalwart, with the idea that it will be able to attract a strong leader to the CEO role who can help right the ship.
