Lululemon Lowers Full-Year Earnings Forecast Amid Tariff Pressures
Lululemon’s stock tumbled 20% in extended trading after the athletic apparel company revised its full-year earnings outlook downward, citing a significant impact from U.S. tariffs. Despite surpassing second-quarter earnings estimates, the company narrowly missed revenue projections.
Tariff Impact and Financial Performance
Lululemon estimates that President Donald Trump’s tariffs will reduce its full-year profits by approximately $240 million. The company now anticipates fiscal 2025 earnings per share between $12.77 and $12.97, substantially below Wall Street’s consensus of $14.45. Revenue guidance was also lowered to a range of $10.85 billion to $11 billion, compared with analyst expectations of $11.18 billion.
Chief Executive Calvin McDonald attributed the guidance cut to escalating tariff rates and the elimination of the de minimis exemption, which previously excluded smaller shipments from tariffs. “The increased rates and removal of the de minimis provisions have played a large part in our guidance reduction for the year,” McDonald explained during the earnings call.
Second-Quarter Results
For the second quarter, Lululemon reported earnings of $3.10 per share, outperforming the $2.88 consensus estimate. Revenue totaled $2.53 billion, slightly below the expected $2.54 billion. Net income declined to $370.9 million from $392.9 million in the same period last year.
Gross margin fell 1.1 percentage points to 58.5%, while operating margin dropped 210 basis points to 20.7%. Same-store sales in the Americas decreased 4%, and overall comparable sales rose just 1%, missing the 2.2% increase forecasted by analysts. The company added 14 net new stores during the quarter, bringing its total store count to 784.
Challenges in Product Strategy
McDonald acknowledged that Lululemon’s product lifecycles, especially in the lounge and social categories, have extended too long, leading to stagnation. “Our lounge and social product offerings have become stale and have not been resonating with guests,” he said, identifying these issues as key contributors to the company’s challenges in the U.S. market.
To address these concerns, Lululemon plans to increase the proportion of new styles in its assortment from 23% to 35% by next spring and enhance its fast-track design processes. McDonald emphasized a commitment to long-term brand integrity, stating, “We will not make any short-term decisions that could hurt or damage the brand in the long term.” He added, “We are not satisfied with the results for the quarter, and we know our brand can and will perform better than these results.”
Outlook for Third Quarter
The company projects third-quarter revenue between $2.47 billion and $2.50 billion, below the $2.57 billion expected by Wall Street. Earnings per share are forecasted to range from $2.18 to $2.23, compared to the $2.93 consensus estimate.
