Net Profit Down 13%, How Long Can Lululemon Rely on China While Facing Internal and External Challenges?

How will the internal proxy fight at AI · lululemon affect its recovery?

21st Century Business Herald Reporter Gao Jianghong Intern Zhang Heyun

On March 17, lululemon reported its Q4 and full-year results for 2025, marking a tumultuous year. The Q4 financial report beat lowered market expectations, with net revenue up 1% to $3.6 billion, a modest performance for investors. However, the growth rate of net income slowed significantly to its lowest in nearly three years. For comparison, net income growth in Q4 of 2024, 2023, and 2022 was 13%, 16%, and 30%, respectively.

The annual performance was also concerning. Although lululemon’s global net revenue for 2025 first surpassed $10 billion, reaching $11.1 billion, the 5% growth rate hit a new low since the company’s IPO, with North America even stagnating. Under the pressure of tariffs, unresolved CEO succession, and continuous stagnation in North America, lululemon’s net profit attributable to shareholders declined by 12.97%, to $1.579 billion.

Fortunately, the Chinese market became the only lifeline, achieving high growth against the trend and leading global expansion. In Q4 2025, mainland China’s net revenue increased by 24% year-over-year, and for the entire fiscal year, China’s net revenue grew by 29%. By the end of fiscal 2025, lululemon’s directly operated stores in China exceeded 170.

While new products are just emerging and expansion continues, short-term transformation pains are unavoidable. This high-end sportswear giant faces “double pressure” from emerging brands in the same segment and cross-sector competition from traditional sports giants, along with ongoing internal conflicts.

Meghan Frank, interim co-CEO and CFO, stated during the earnings call that the company will continue to implement its established plans, with “improving full-price sales becoming a key focus in fiscal 2026, especially in North America.”

Internal and external challenges, profit decline

lululemon’s performance pressure results from multiple internal and external factors.

As a high-end sportswear brand that has long relied on minimal promotions and premium pricing, the company previously had to break its traditional positioning and adopt discount strategies to boost sales and clear inventory. This strategy positively affected inventory structure. Frank mentioned during the call, “We are satisfied with our inventory levels and structure at the end of Q4. We had expected high single-digit inventory growth, but actual increase was only 6%, which is healthier than expected. For 2026, we expect inventory to remain flat or slightly decrease.”

In 2026, the company plans to reduce discounts and return to full-price sales. While this strategic shift aims to reshape brand value, it will inevitably impact revenue growth in the short term. Coupled with weak performance in its core North American market—where same-store sales have stagnated for nearly two years and sales are projected to decline by 1-3% in 2026—this further amplifies performance pressures.

Beyond strategic pains, rising tariffs and operational costs further squeeze profits. In 2026, lululemon expects tariffs to increase gross costs by $380 million, up sharply from $275 million in the previous year. After mitigation, net impact reaches $220 million, higher than $213 million in 2025. The abolition of minimum duty-free thresholds also adds to costs. Given the brand’s premium pricing position, slowing growth in the athleisure market, and intensified industry competition, the company cannot simply raise prices to offset costs. It plans only modest price increases on some products with no further hikes planned. Additionally, increased marketing spend and rising labor costs further compress profit margins.

Frank revealed, “In Q4 2025, gross profit was $2 billion, accounting for 54.9% of net revenue, down from 60.4% in the same period of 2024. Overall product gross margin declined by 560 basis points, mainly due to tariffs and higher discounting.”

Adding to the woes, the internal turmoil caused by the proxy fight initiated by founder and largest shareholder Chip Wilson has further intensified performance pressures. Wilson previously criticized the board for deviating from the brand’s creative core and lacking independent leadership, pushing for a board reshuffle. This conflict not only incurred high related costs but also led to management changes, distracting the company from operational focus. Market concerns over internal discord have also affected brand reputation and investor confidence, indirectly impacting performance.

Ahead of the earnings release, lululemon made concessions by appointing Levi Strauss & Co. CEO Chip Bergh to the board. Long-standing director David Mussafer will not seek re-election, temporarily easing some controversy. However, the negative impact of management instability remains, and investors are still awaiting a new CEO to revitalize the brand.

Amid these uncertainties, lululemon’s guidance for fiscal 2026 is below expectations. The company projects Q1 revenue between $2.4 billion and $2.43 billion, up about 1-3%. Full-year revenue is expected between $11.35 billion and $11.5 billion, an increase of approximately 2-4%, significantly lower than its historical growth. EPS for 2026 is forecasted to be between $12.10 and $12.30.

North America stalls, China surges

Founded in 1998 by Chip Wilson in Vancouver, Canada, lululemon is a high-end sportswear brand that started with yoga apparel. Headquartered in Vancouver, British Columbia, North America has long been a key growth driver. André Maestrini, interim co-CEO, president, and chief commercial officer, said, “We remain the leading brand in the U.S. women’s activewear market. In 2025, new customer acquisition, retention, engagement, and core brand relevance metrics will remain solid.”

However, financial results show a more serious decline in North America. In Q4 2025, U.S. net revenue fell 4%, and comparable sales in the Americas declined 1%. For the full year, U.S. revenue decreased 1%, with comparable sales down 3%.

The once-strong “yoga pants = lululemon” moat is being eroded by both new and old competitors. Alo has turned yoga pants into a fashion icon through celebrity streetwear, with a 63% overlap in customer base. Vuori, initially targeting men’s yoga wear, has precisely targeted lululemon’s male market, dubbed the “male version of lululemon.”

Meanwhile, as lululemon shifts from “yoga pants” to a “sports lifestyle” brand, it must enter the arenas of giants like Nike and Adidas, facing their encirclement and competition.

The company’s financial report emphasizes that restoring full-price sales in North America is a core priority, with key measures including increasing product innovation, reducing discounts, streamlining SKUs, and optimizing inventory. Frank predicts that in 2026, North American revenue will decline by 1-3%, with the U.S. market in the same range. “Q1 full-price sales have improved compared to Q4 2025, and Q2 is expected to be flat, with positive growth in the second half of the year.”

Zhou Ting, director of the KOC Research Institute, said that in the North American market, led by the U.S., lululemon’s performance can only further decline amid market saturation and increasing brand polarization.

Amid a generally weak global market, China has become the brightest spot in lululemon’s financials, taking on the role of global growth engine. In Q4 2025, China’s net revenue grew 24% year-over-year, and for the full year, it increased 29%. Even on a high base, China outperformed all regions, offsetting North America’s sluggishness. Management explicitly stated that in 2026, China’s revenue is expected to grow about 20%, with Q1 potentially achieving explosive growth of 25-30%, far exceeding the company’s global guidance of 2-4%.

Behind this rapid growth are localized operations and channel expansion. Maestrini said, “In China, our product mix received positive feedback in Q4, especially the Wunder Puff™ series. During Chinese New Year, we released the new Spring Festival short film ‘Spring, Repeated as New’ and launched a limited Spring Festival collection. This reflects our ongoing engagement with local consumers around key cultural moments, strengthening our connection.” This localized consumer interaction strategy continues to garner positive responses and further consolidates market share.

China not only maintains steady growth but also becomes the main driver for global store expansion in 2026. Frank stated, “In fiscal 2026, the company plans to open 40-45 new directly operated stores worldwide and optimize about 35 existing stores, aiming for low double-digit growth in total retail space. The expansion includes about 15 stores in North America, with around 8 in Mexico, and 25-30 internationally, most of which will be in China.”

Besides China, Europe, South Korea, and other international markets also show steady growth. In Q4 2025, revenue increased 12% year-over-year, with mid-double-digit growth expected in 2026, potentially surpassing China as the second growth engine. lululemon is further consolidating its high-end position in these key activewear markets.

However, behind these impressive figures lie hidden crises. Zhou Ting pointed out that despite growth, the overall trend is downward. Even in China, high growth comes at the cost of brand democratization. “This approach is gradually shortening lululemon’s brand lifecycle,” she warned.

More critically, lululemon is caught in the common trap of revenue growth without profit growth, indicating that with limited brand strength enhancement, it has fallen into a “relatively low-price competition” trap. Rising raw material and customer acquisition costs, declining store efficiency, and decreasing customer conversion rates are increasing internal pressures. Without a high-end brand repositioning, profit margins will further decline. Zhou Ting expressed concern that unless the brand is repositioned as a premium label, profitability will continue to suffer.

To break the growth dilemma, lululemon is launching a comprehensive transformation: stopping excessive discounts and gradually returning to full-price sales—though this may suppress short-term revenue—aiming to restore brand premium and gross margins; accelerating product iteration, with plans to increase new product penetration from 23% in 2025 to 35% in 2026, introducing entirely new styles rather than just color variations of existing ones. Future products will feature less logo, more coordinated colors, streamlined accessories, and enhanced brand recognition.

According to the call, the first collection designed by new Creative Director Jonathan Cheung will debut in Q1. Frank revealed, “We’ve seen some positive signs from Q1 products, and we’re excited about the growth potential of this line.” Additionally, lululemon is leveraging automation and AI to optimize processes, reducing new product development cycles from 18-24 months to 12-14 months, improving the replenishment efficiency of bestsellers.

Whether this self-rescue through product, supply chain, and brand repositioning can help lululemon emerge from the trough remains to be seen by the market.