Single-season net profit drops by 20%, lululemon recruits a "firefighter" to rely on the Chinese market to support performance

Ask AI · How will Chip Berg’s entry affect the company’s strategic adjustments?

Source of this article: The Times Finance | Authors: Wu Jiamin Li Qian

Image source: Pexels

Canadian athletic apparel brand lululemon is facing the challenge of “increasing revenue without increasing profits.”

On March 18, lululemon (LULU.O) released its fiscal year 2025 fourth-quarter and full-year results. In the fourth quarter, revenue increased 1% year over year to about $3.641 billion; net profit fell 22% year over year to $587 million.

Looking at the full-year cycle, for fiscal year 2025, lululemon’s full-year revenue rose 5% year over year to $11.103 billion; net profit declined 13% year over year to $1.579 billion.

Comparing performance over the past three years, it can be seen that lululemon has moved from rapid growth into a structural adjustment phase. In fiscal years 2023–2024, the company’s revenue was $9.6 billion and $10.6 billion, respectively, maintaining double-digit year-over-year growth; in fiscal year 2025, revenue growth slowed.

In response to these results of “increasing revenue without increasing profits,” lululemon said the performance was mainly dragged down by two major factors: first, rising tariff costs, with the impact of tariffs in the fourth quarter lowering product gross margin by 520 basis points. Second, stronger discounting— to clear inventory, the brand’s discount penetration in the North America market in 2025 was too high, further squeezing product gross profit. In addition, fixed cost dilution, foreign-exchange fluctuations, and brand-building efforts have also affected the company’s profitability.

By region, international business has shouldered the banner for revenue growth, while lululemon’s North American home base is in an adjustment period.

For fiscal year 2025, lululemon’s Americas market revenue fell slightly by 1% to $7.847 billion. The 5% total revenue growth for the full year was mainly driven by growth in Mainland China and other regions. Among them, the Mainland China market performed exceptionally, with fiscal year 2025 revenue up 29% year over year to $1.755 billion; revenue in other regions rose 16% year over year to $1.501 billion—these two regions became important forces offsetting weaker sales performance in the North American market.

To address performance challenges at home, lululemon’s management outlined three major plans during the earnings call to improve performance in the North America market. These include strengthening market recognition of new products and innovation, speeding up the launch of new products such as a collaboration with professional tennis player Francis Tiafoe; returning to offline community activities to build a more brand-distinctive product matrix, while not sacrificing quality; and reshaping consumer mindset through methods such as the Los Angeles Studio Yet, sponsoring the BNP Paribas Open in Paris, pop-up stores, social platform operations, and KOL collaborations.

In fiscal year 2025, lululemon’s global direct-operated store count increased by a net 44 to reach 811. The expansion pace of international stores far exceeded that of the North America market: Mainland China added 21 stores, while North America added 14 stores.

Facing earnings pressure, at the March 18 earnings exchange meeting, interim Co-CEO and CFO Megan Frank explicitly laid out the core strategy for fiscal year 2026—“strengthen the brand, restart growth, drive improvements in the U.S. business, and maintain growth momentum in international markets.”

Interim Co-Chief Executive Officer, President, and Chief Commercial Officer Andre Mastrini said bluntly, “In 2025, the discount penetration rate in the North America market was too high; in 2026, our core goal is to restore a healthy share of full-price sales.” Management also said that in fiscal year 2026, it will repair profitability and brand value through measures such as strengthening the positioning of sports-performance apparel, optimizing in-store merchandising, increasing the penetration rate of spring new products, and strictly controlling discount levels.

This earnings call also signaled a major shift in corporate governance. On the day of the financial report release, during the earnings exchange meeting, lululemon simultaneously announced that Chip Bergh—the former president and CEO of Levi’s—has newly joined the company’s board of directors. The number of board members was expanded from 9 to 10. As disclosed by management, over the past five years, five new directors have already joined.

Lululemon executives may be hoping Chip Bergh can step in to “put out the fire” at lululemon, which is currently in an adjustment period. During his tenure as president and CEO of Levi’s from 2011 to 2024, he pushed the brand’s transformation, repaired gross margin, and stabilized the company’s global channels.

According to financial report data, from fiscal year 2012 to fiscal year 2025, Levi’s revenue increased from $4.61 billion to $6.282 billion. In 2019, under Chip Bergh’s leadership, Levi’s once again listed on the NYSE. In addition, Chip Bergh previously worked for many years at consumer-packaged-goods company Procter & Gamble.

Under the fiscal year 2026 guidance, lululemon’s net revenue is expected to be $11.35 billion–$11.5 billion, up 2%–4% year over year. For the first quarter of fiscal year 2026, revenue is expected to be $2.40 billion–$2.43 billion, up 1%–3% year over year.

In terms of market expansion, lululemon continues to show confidence in the China market. For fiscal year 2026, Mainland China revenue is expected to grow by about 20%, with the growth rate in the first quarter projected to reach 25%–30%. Globally, the company plans to open 40–45 new direct-operated stores, of which 25–30 will be in international markets, and most will be in Mainland China.

With competition in the global premium athletic apparel sector heating up, Nike and Adidas are ramping up their yoga and training categories, and Alo—also a yoga brand—is accelerating its layout in China as well. In China, lululemon will also face the rise of local premium athletic brands.

Combined with tariffs, inflation, and cautious consumer sentiment, lululemon still faces challenges in the near term.