Can lululemon's "Power of Three x2" Strategy Still Hit FY26 Targets?

Core Insights - lululemon athletica inc. (LULU) is implementing its "Power of Three x2" strategy, aiming to double men's, digital, and international revenues by fiscal 2026, amidst mixed operating conditions, particularly in the U.S. market [2] Financial Performance - In Q3 fiscal 2025, lululemon achieved a 7% year-over-year revenue growth, driven by a 33% increase in international revenues, with China showing a remarkable 46% growth [3][10] - U.S. revenues, however, declined by 3% in the same quarter due to cautious consumer behavior and increased promotional activities [4][10] Strategic Initiatives - To counteract U.S. challenges, lululemon is executing a three-pillar action plan focused on product creation, activation, and enterprise efficiency, including initiatives to enhance new-style penetration and refresh major product lines [4] Margin Pressures - The company experienced a 290-basis-point decline in gross margin in Q3 due to higher tariffs and markdowns, with expectations of continued margin pressures into fiscal 2026 [5][10] Market Position and Competitors - lululemon's international growth and disciplined financial management suggest that the "Power of Three x2" strategy remains viable, with 2026 being a critical year for proving its effectiveness [6] - Competitors Crocs Inc. (CROX) and Ralph Lauren Corporation (RL) are also navigating similar market conditions, with both companies showing resilience and effective execution of their growth strategies [7][8][9] Valuation and Earnings Estimates - lululemon's shares have increased by 22.6% over the past three months, contrasting with a 0.1% decline in the industry [11] - The company trades at a forward price-to-earnings ratio of 15.97X, which is lower than the industry average of 16.43X [12] - Earnings estimates for fiscal 2025 and 2026 indicate expected declines of 11% and 0.7%, respectively, with recent adjustments showing mixed trends [14]