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After a steady decline in comparable sales growth over the past year, athleisurewear and yoga pants retailer lululemon athletica (LULU) rebounded in 3Q25, boosted by strong growth across its international markets and a stabilization in the U.S. Importantly, this improved sales performance isn't the result of higher promotional activity -- markdowns were flat yr/yr -- but rather, strengthening momentum in China and early returns from its U.S. turnaround plan were key drivers behind LULU's top and bottom-line beat. The cherry on top is that LULU also announced a $1.0 bln increase to its stock repurchase program.

• Adding to the positive vibes, CEO Calvin McDonald stated during the earnings call that the holiday shopping season is off to a solid start and that he's pleased with the traffic trends seen in both the e-Commerce and store channels over the Thanksgiving weekend. With nearly two-thirds of the holiday season still in front of LULU, and with macro-related headwinds persisting, the company is taking a careful approach in terms of planning.
  • As such, LULU's inline Q4 EPS and revenue guidance is likely being viewed as conservative, perhaps setting the stage for another upside performance when it reports Q4 results in early March.
• As has been the case lately, the international business was the standout with comparable sales growing by 22% on constant currency basis. The company achieved growth in each international market, but China led the way with comps jumping by 24% (cc), driven by a direct sales approach that includes hosting wellbeing events and activations.
  • In Q3, LULU hosted events in nine Chinese cities, anchored by its activation in Shanghai.
• Meanwhile, the company is making strides in the U.S., where a combination of rising competition, sluggish consumer spending trends, and the lingering effects of some merchandising missteps in the spring have crippled its growth. Revenue was flat on a qtr/qtr basis in the U.S., reflecting a stabilization in demand, and a return to growth may be on the horizon as LULU's turnaround plan gains traction.
  • More specifically, the company has implemented a new reporting structure within its product team, leading to better coordination and faster decision making within the merchandising teams. 
  • Additionally, after introducing a spring product assortment that lacked newness and was understocked in certain colors and sizes, LULU is expanding its assortments by adding updated colors, prints, and patterns, beginning by 1Q25.
• Despite the competitive environment and soft consumer spending trends, LULU has resisted turning to promotions to drive sales growth. As a result, its gross margin expanded by 150 bps to 58.5%.

The main takeaway is that while LULU is a long way from the impressive growth rates seen in 2021-2023, its Q3 earnings report stopped the bleeding, easing concerns that its U.S. business would remain in a deep slump that extended throughout the holiday shopping season. At the same time, the emergence of LULU's international business -- especially mainland China -- is taking the sting out of the slowing Americas market, providing the company with a needed growth catalyst.