1. China: The Core Growth Engine

Status: Most Critical Market for LULU’s Growth Story

Why China Matters

China is now Lululemon’s second-largest market, surpassing Canada.
Americas growth: ~1%
China growth: ~25% YoY
Without China, global revenue growth would be near zero.
Premium pricing in China (~20% higher than U.S.) supports global margins.
Expansion runway remains long with Tier 2 city openings.
China now ~16% of total revenue (up from ~13% last year).

Key Operating Metrics (Q2 FY25)

China revenue: ~$393M, +25% YoY
Comparable sales: +17%
Stores: On track for 200 by year-end FY25

Bull Drivers

Men’s category adoption stronger than in the West
Effective community & KOL marketing on Douyin/Xiaohongshu
Chinese wellness trend aligns with LULU’s brand identity

Risks

High-quality “dupes” on Taobao/TikTok
Local competitors (e.g., Maia Active)
Geopolitical/tariff risk
Nationalist boycott risk

Thesis:
Owning LULU today is a bet that China can sustain 20%+ growth for the next 3 years.
If China slows to single digits → thesis breaks.

2. Competitive Landscape (U.S. Market Weakness)

Aerie (AEO / OFFLINE)

Aerie’s OFFLINE line is a direct competitor in value athleisure.
Latest comparable sales: +11%, significantly outperforming LULU Americas (~1%).
Entry-level consumers are trading down due to price sensitivity.
OFFLINE is capturing the dupe economy—younger shoppers prefer lower-cost alternatives.
Competition limited to: leggings, bras, loungewear (not technical gear).

Implication:
LULU is losing share in youth/value categories, especially in lower-priced leggings.

Free People Movement (URBN: FP Movement)

FP Movement is Lululemon’s biggest premium competitor right now.
Strong growth confirms women are still buying activewear.
FP offers a boho-active, fashion-forward aesthetic.
Trend-conscious shoppers are rotating away from LULU’s minimalist/technical look.

Implication:
The premium customer isn’t disappearing—she’s shifting to brands with stronger fashion identity.

Nike, On Holding, HOKA (Deckers)

Compete more heavily on performance vs aesthetic.
Still relevant but not the core driver of share shifts this year.
ONON and HOKA gaining traction in running and training categories.

3. Macro Fashion Rotation

Trend Shift:
The U.S. consumer has rotated from:

Leggings & athleisure → Denim & structured outfits

Evidence:

URBN and AEO outperforming due to denim strength.
LULU’s core category (leggings) has lost trend momentum.
“Going-out” apparel gaining share vs comfort clothing.

Implication:
LULU’s U.S. softness is not due to lack of activewear demand globally—
It’s due to trend rotation + competition + price sensitivity.

4. Fundamental Backdrop

Margins & Profitability

Gross margin ~58.5% (down 110 bps)
Operating margin ~20.7% (down 210 bps)
Pressure from U.S. markdowns and customer acquisition costs.

Valuation

P/E (TTM): ~13x (historically cheap)
P/E (Forward): ~19–21x
EV/EBITDA: ~7.5x
Market pricing LULU like a no-growth retailer despite strong cash flow.

Balance Sheet

Zero long-term debt
$1.2B+ cash
Strong FCF → aggressive buybacks

5. Final Synthesis — What Actually Matters for Investors

Bull Case

China’s accelerating growth offsets U.S. stagnation
International runway is long
Valuation deeply discounted vs historical averages
Margins remain best-in-class
Buybacks amplify EPS at low multiples

Bear Case

U.S. saturation + fashion shift to denim
Competition: Aerie gains value share, FP Movement gains fashion share
Margin erosion from promotions
China geopolitical risk
If China growth slows → the entire thesis weakens

6. One-Line Summary

Lululemon’s investment case now hinges almost entirely on China’s continued 20%+ growth, while domestic trends show clear competitive and fashion-driven headwinds from Aerie, FP Movement, and the denim rotation.