lululemon athletica inc.

Financial Highlights

The summary below compares the second quarter of 2025 to the second quarter of 2024:

•Net revenue increased 7% to $2.5 billion. On a constant dollar basis, net revenue increased 6%.

•Comparable sales increased 1%.

–Americas comparable sales decreased 4%, or 3% on a constant dollar basis.

–China Mainland comparable sales increased 17%, or 16% on a constant dollar basis.

–Rest of World comparable sales increased 12%, or 9% on a constant dollar basis.

•Gross profit increased 5% to $1.5 billion.

•Gross margin decreased 110 basis points to 58.5%.

•Income from operations decreased 3% to $523.8 million.

•Operating margin decreased 210 basis points to 20.7%.

•Income tax expense decreased 2% to $162.6 million. Our effective tax rate for the second quarter of 2025 was 30.5% compared to 29.6% for the second quarter of 2024.

•Diluted earnings per share were $3.10 compared to $3.15 in the second quarter of 2024.

Market Conditions and Trends

Across all markets, our business continues to be negatively influenced by macroeconomic conditions, including trade policies, shifting consumer demand, inflation, foreign currency fluctuations, and geopolitical instability. These factors have had varying effects across our markets and are expected to continue to impact our business throughout 2025 and beyond.

While total net revenue increased across all regions in the second quarter of 2025, comparable sales in the Americas decreased 4%, or 3% on a constant dollar basis. We experienced lower conversion rates and store traffic in the Americas, partially reflective of economic uncertainty, lower consumer confidence, changes in discretionary spending, and certain product offerings experiencing lower demand.

Import Tariffs

On April 2, 2025, the United States announced the implementation of a 10% baseline tariff on imports from nearly all countries with higher country-specific tariff rates scheduled to begin April 9, 2025. The implementation of country-specific tariffs was subsequently delayed to allow negotiations. Certain countries, including Vietnam, have announced trade deals with the United States and most negotiated tariff rates are higher than the 10% baseline rate. There has been significant volatility in U.S. tariff and customs policy, and trade negotiations between the United States and other countries are ongoing.

The United States also approved the One Big Beautiful Bill Act on July 4, 2025, which removed the de minimis exemption for low value shipments imported into the United States in 2027. On July 30, 2025, the President of the United States issued an executive order removing the de minimis exemption for all countries beginning August 29, 2025.

These changes in the tariff landscape, including the de minimis removal, are expected to have a significant adverse effect on our business and results of operation. The countries from which we source the majority of our products are now subject to higher tariffs on imports into the United States. Further, the majority of our sales to U.S. e-commerce guests are currently fulfilled from distribution centers in Canada, and historically a significant proportion of these orders qualified for the de minimis exemption. The removal of this exemption increases the cost of fulfilling those orders. We are taking steps to mitigate the financial impact which includes vendor negotiations and selective price increases. These actions are not anticipated to fully offset the effect of higher tariffs and the removal of the de minimis exemption, and we anticipate a significant reduction in our gross margin and operating margin.

The impact of increased tariffs, net of mitigating activities, resulted in a reduction to gross profit for the first two quarters of 2025 of approximately $10 million. We estimate, based on the information available to us today, that increased tariffs, and the removal of the de minimis exemption, will reduce gross profit for 2025 by approximately $240 million, net of mitigation efforts.

This estimate is our best current view and may change materially as conditions evolve and new information becomes available. It reflects a number of assumptions including (i) the tariff rates and timing of implementation, (ii) the duration and scope of the de minimis exemption removal, (iii) the potential application of transshipment tariff rules, (iv) our ability to execute vendor savings, and (v) customer demand elasticity and pricing response. Actual results may differ materially from this estimate, whether because these assumptions prove inaccurate or because of subsequent changes in tariff policy, trade negotiations, sourcing conditions, consumer demand for our products, or other factors outside our control.

Because this is an evolving area, future developments may change our expectations materially. For additional information on related risks, please see “Risk Factors” in this quarterly report.

Our updated forecasts, inclusive of the trends above, have resulted in changes in the probability of achieving performance conditions of performance-based restricted stock units. Therefore, we recognized a reversal of stock-based compensation expense of $26.3 million during the second quarter of 2025.

Foreign Currency Fluctuations

Foreign currency fluctuations negatively impacted our financial results during the first two quarters of 2025, reducing net revenue growth by $10.7 million compared to the first two quarters of 2024, primarily due to the overall appreciation of the US dollar relative to the Canadian dollar. We expect ongoing exchange rate volatility to continue affecting our financial results.