Lululemon Athletica’s stock prices took a nosedive as the company revised its annual profit projections downward for the second consecutive quarter, citing underperformance in its U.S. operations and increased tariff expenses. The Vancouver-based yoga apparel and clothing retailer also adjusted its yearly sales forecast, resulting in a notable 17% drop in its shares prior to the NASDAQ opening on Friday.
During a post-earnings call, CEO Calvin McDonald expressed dissatisfaction with the current state of the company’s U.S. business performance despite positive momentum in international markets. Lululemon anticipates a $240 million impact on its 2025 gross profit due to elevated tariffs and the elimination of the de minimis exemption, with an additional $320 million hit on its operating margin projected for 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 that the company had extended the lifecycles of products in core categories for too long and had become overly predictable in its casual offerings, specifically mentioning the softstreme, dance studio, and scuba styles.
Lululemon, which fulfills approximately two-thirds of its U.S. e-commerce orders, utilized the exemption through distribution centers in Canada. CFO Meghan Frank stated that the company intends to implement strategic price increases in the U.S. market to mitigate tariff impacts while increasing overall markdowns to clear inventory.
As of 2024, Lululemon relied on Vietnam and mainland China for 40% of its manufacturing and 28% of its fabrics. The company now expects annual revenue to range between $10.85 billion and $11 billion, with projected profit per share between $12.77 and $12.97. Revenue for the second quarter, which ended on August 3, increased by seven percent to $2.53 billion, meeting analysts’ expectations. Earnings per share of $3.10 surpassed estimates of $2.88.
Analysts have noted that Lululemon is facing intensified competition from imitators, leading to a decrease in its market share. Despite challenges in the U.S. retail landscape, the company remains optimistic about its international growth, with a focus on customer loyalty and expansion in markets like Mexico and China following a period of rapid expansion.
In light of the current economic climate and a projected decline in holiday spending, Lululemon’s outlook remains cautious. Analysts, such as Suzy Davidkhanian from eMarketer, highlight the company’s struggle to maintain its innovative edge amid growing competition and changing consumer preferences.
