LULU Reports Q2 2025 Earnings: Net Income and Revenue See Modest Growth Amidst Increased Operating Expenses

lululemon athletica inc. (LULU.US) reported net income of $370.9 million for the second quarter of 2025, a 5.6% decrease from the prior year. Revenue for the quarter reached $2.525 billion, marking a 7.0% increase year-over-year but falling short of analyst estimates of $2.540 billion. Diluted earnings per share (EPS) stood at $3.10, a slight decrease from $3.15 in the second quarter of 2024, but still above analyst estimates of $2.84, meaning LULU beat expectations.

Operating Expenses and Profitability

Selling, general and administrative expenses increased by 9.1% to $951.7 million for the quarter. This rise contributed to a 210 basis points decrease in operating margin, which fell to 20.7% from 22.8% in the prior year. The increase in expenses was primarily driven by higher employee costs, digital marketing, and depreciation.

Gross profit increased by 4.6% to $1.477 billion, however, gross margin decreased by 110 basis points to 58.5%. This was mainly attributed to a net decrease in product margin, stemming from higher markdowns, tariffs, and other costs, partially offset by higher pricing and lower product costs. Additionally, there was a net increase in other cost of sales as a percentage of net revenue due to increased occupancy and depreciation costs, as well as distribution center and product department costs.

Segment Performance

The Americas segment saw net revenue increase by 1.0%, reaching $1.758 billion, primarily driven by new and expanded company-operated stores. However, comparable sales in the Americas decreased by 4%, reflecting lower conversion rates and reduced store traffic. Conversely, China Mainland net revenue surged by 25.1% to $392.9 million, with comparable sales increasing by 17%, driven by increased e-commerce traffic.

The Rest of World segment also posted strong growth, with net revenue up 18.6% to $374.1 million, supported by new store openings and a 12% increase in comparable sales. Despite the revenue growth across regions, the Americas segment experienced a 7.5% decrease in segmented income from operations, primarily due to higher selling, general, and administrative expenses and lower gross margin.

Market Conditions and Outlook

The company noted that macroeconomic conditions, including trade policies, inflation, and foreign currency fluctuations, continue to impact its business. Notably, changes in U.S. tariff and customs policy, including the elimination of the de minimis exemption for low-value shipments, are expected to significantly increase product costs. The company estimates that increased tariffs and the de minimis removal will reduce gross profit for fiscal year 2025 by approximately $240 million, net of mitigation efforts.

These evolving conditions have led to a reversal of stock-based compensation expense totaling $26.3 million during the quarter, reflecting changes in the probability of achieving performance conditions. Management highlighted ongoing efforts to mitigate these impacts through vendor negotiations and selective price increases, though these are not expected to fully offset the adverse effects.