Lululemon Athletica’s stock prices took a sharp dive as the company revised down its annual profit forecast for the second consecutive quarter, pointing to underperformance in the U.S. market and tariff-related expenses. The Vancouver-based retailer also adjusted its yearly sales outlook, resulting in a nearly 17% drop in shares before NASDAQ trading on Friday.
During a post-earnings call, CEO Calvin McDonald expressed dissatisfaction with the U.S. business’s current performance, contrasting it with positive trends in international regions. Lululemon anticipates a $240 million impact on its 2025 gross profit due to increased tariffs and the elimination of the de minimis exemption, with an additional $320 million hit on its operating margin in 2026.
The removal of the de minimis exemption, which allowed duty-free entry for international shipments under $800, became effective on August 29. McDonald acknowledged the need to refresh product cycles in core categories and diversify casual offerings, mentioning specific styles like softstreme, dance studio, and scuba.
To mitigate tariff effects, CFO Meghan Frank confirmed the company’s strategy of implementing targeted price increases in the U.S. market while increasing overall markdowns to clear inventory. Lululemon heavily relies on manufacturing from Vietnam and mainland China, accounting for 40% and 28% of its production and fabric sourcing, respectively, as of 2024.
Analysts noted an increase in market share by copycat competitors, impacting Lululemon’s revenue outlook for the year. The company now projects annual revenue between $10.85 billion and $11 billion, with a revised profit per share estimate of $12.77 to $12.97. Second-quarter revenue reached $2.53 billion, a 7% increase, and beat earnings per share estimates at $3.10.
Amid a challenging U.S. holiday spending season, marked by an anticipated decline, industry experts have observed Lululemon facing intensified competition from luxury newcomers and private-label imitations offering similar fabric technology at lower prices. Despite these challenges, McDonald expressed confidence in the company’s ability to navigate the retail landscape, especially with continued international growth efforts, including expansions in Mexico and China.
Lululemon’s performance reflects a shift from its previous hypergrowth phase, highlighting the importance of customer loyalty in sustaining its market position. The company’s strategic store openings worldwide and a focus on key markets signal a commitment to long-term growth amidst evolving market dynamics.
