Lululemon (LULU-US) has endured a bruising year. Its stock has plunged 46.4% in 2025, erasing nearly $25 billion in market value. Now, the company faces a leadership shake-up as CEO Calvin McDonald prepares to step down after more than seven years at the helm.
CEO Transition Amid Market Doubts
Lululemon announced McDonald will resign effective January 31, 2026, staying on as senior advisor until March. The board praised his tenure—annual revenue tripled under his leadership, global expansion reached over 30 markets, and China became its second-largest market. Yet with North America stagnating, the board is seeking a new CEO to lead a transformation.
Founder Chip Wilson has been openly critical, accusing management of losing the brand’s "sense of style" and focusing too much on financials. McDonald countered that he had already begun adjustments, including faster product cycles and new launches aimed at reviving U.S. sales.
North America Weak, China Strong
The company’s Q3 2025 earnings underscored the divide. Net revenue rose 7% year-over-year to $2.6 billion, but North America fell 2% while international markets surged 33%. Same-store sales dropped 5% in North America but jumped 18% abroad.
China was the standout: revenue climbed 46% year-over-year, with same-store sales up 25%. Lululemon expects full-year growth in China to exceed its 20–25% guidance, reinforcing the region as a lifeline amid North American weakness.
Inventory Pressure and Margin Squeeze
Profitability is under strain. Gross profit rose 2% to $1.4 billion, but margins slipped by 290 basis points to 55.6%. Operating profit fell 11% to $440 million, with margins down to 17%.
Inventory swelled to $2 billion, up 11% year-over-year, forcing heavy promotions. Analysts noted over 1,200 discounted items on Lululemon’s app in November, a stark contrast to prior years when most products sold at full price. CFO Meghan Frank pledged tighter inventory control and higher full-price penetration to protect margins.
Competitive Landscape
In North America, Lululemon faces rising competition from Alo Yoga and Vuori, while tariffs and policy changes are expected to shave $210 million off 2025 revenue. Analyst Matt Jacob of M Science highlighted ongoing struggles with core women’s trousers, once the brand’s flagship category.
Outlook
Lululemon plans to open 15 new North American stores in 2025, including nine in Mexico, and six internationally—most in China. The company hopes new styles will account for 35% of its assortment by spring 2026.
For investors, the story is clear: Lululemon’s growth engine has shifted overseas. Whether a new CEO can revive North America while sustaining momentum in China will determine if the brand can reclaim its former market value.