Lululemon Earnings: Can the company maintain its stellar international sales?

Tariffs pose risks because the company leans heavily on Asian manufacturing

• Lululemon will report quarterly earnings after the market closes on Thursday.
• The company is expected to report earnings-per-share of $2.58 on $2.36 billion in revenue.
• International sales are taking off for the premium athletic clothing company.
• But tariff risks are high because it leans heavily on Asian manufacturing.

Stock in Lululemon (LULU) is up $100 from the lows realized in April but still down on the year by more than $40. LULU currently hovers around $340 per share, and earnings implied volatility is high. The compnay will report quarterly earnings after the market closes on Thursday and is expected to announce earnings-per-share (EPS) of $2.58 on $2.36 billion in revenue.

In the previous earnings call, the premium athletic clothing company highlighted many year-end fiscal data points. While Lululemon had a great fiscal year, the biggest growth came from international initiatives, and international net revenue increased 40% year-over-year (YoY) — multiples of the growth rate of the Americas. This is great, but with tariffs looming we could see a very different result this upcoming fiscal year. The company sources about 40% of its clothing from Vietnam and other Southeast Asian countries. If tariffs hit hard, it could affect the price of products, reduce profit margins and make it much more difficult to be profitable.

Lululemon CEO Calvin McDonald, spoke about fiscal year-end strength in the last earnings call: “Our fourth quarter results exceeded our expectations as we continued to introduce more newness and innovation into our product assortment. Our performance demonstrates the ongoing strength and resilience of Lululemon and is a testament to the passion and dedication of our teams around the world. As we begin 2025, we remain focused on executing on our Power of Three ×2 growth plan and delivering an exciting pipeline of innovation and brand activations for our guests and communities."

Lululemon chief financial officer Meghan Frank echoed the sentiment after reaching a new revenue record: “We are pleased to deliver another solid year of performance in 2024 and surpass $10 billion in annual revenue for the first time. We look forward to building on our growth in 2025, while remaining agile as we navigate ongoing macro uncertainties. There are significant opportunities ahead for the Lululemon brand, and we are confident in our ability to continue creating long-term value for all our stakeholders."

Looking at the earnings implied volatility of the weekly cycle, we can infer there is plenty of uncertainty baked into Thursday’s announcement. With the stock price hovering around $340 per share, we're looking at a +/- $31.25 implied stock price range for this week. At just under 10% of the notional value of the stock price, LULU is on the higher end of earnings implied volatility for the quarter.

This is confirmed when we look at a much later cycle in September, where current implied volatility is pricing in just a +/- $63.95 stock price range. In other words, this week's implied range accounts for almost 50% of the implied range for the next 100+ calendar days.

With such high implied volatility this week, it's clear investors will want to hear more about the effects of potential tariffs and how Lululemon executives plan to curtail them if they can.

Bullish on Lululemon stock for earnings

If you're bullish on LULU stock for earnings, you believe the tariff impact will be much less than feared, and that Lululemon will post strong earnings numbers for the quarter. If it can continue strong growth internationally even when there’s fear of tariffs, we could see the stock price continue to recover and reach the point where it started trading in 2025.

Bearish on Lululemon stock for earnings

If you're bearish on Lululemon for earnings, you believe tariffs will hit hard, and the company will have a difficult time maintaining demand if it increase prices in this economy. If there is an EPS or revenue miss for the quarter, we could see cautious bulls shaken out and the stock price sent lower.

Tune in to Options Trading Concepts Live on Thursday at 11 a.m. CDT for a deeper dive into options trading strategies ahead of the earnings call.

Mike Butler, tastylive director of market intelligence, has been in the markets and trading for a decade. He appears on Options Trading Concepts Live, airing Monday-Friday. @tradermikeyb  

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