Lululemon Stock Takes a 20% Dive After Profit Misses Expectations

• Lululemon Athletica (LULU) shares dropped nearly 20% after a second-quarter outlook of $2.535-$2.56 billion in revenue and $2.85-$2.90 EPS fell below analyst expectations of $2.57 billion and $3.28, with the full-year EPS forecast also cut to $14.58-$14.78 from $14.95-$15.15.
• Despite meeting first-quarter expectations with $2.37 billion in sales and $2.60 EPS, comparable sales growth of 1% missed the anticipated 4.56%, reflecting cautious U.S. consumer spending noted by CEO Calvin McDonald.
• CFO Meghan Frank outlined plans for modest, selective price increases and supply chain adjustments to counter tariff impacts, while analysts from JPMorgan (JPM) and UBS Group (UBS) lowered their price targets to $303 and $290, respectively, from $389 and $330.

Lululemon Athletica (LULU) faced significant pressure on its stock price, plummeting nearly 20% in early trading on Friday, following a disappointing second-quarter outlook and a downward revision of its full-year profit forecast. The athletic apparel retailer projected second-quarter revenue between $2.535 billion and $2.56 billion, reflecting a modest growth of 7% to 8%, which fell short of analyst expectations of $2.57 billion. Earnings per share for the quarter were forecasted at $2.85 to $2.90, significantly below the consensus estimate of $3.28. For the full year, Lululemon maintained its sales guidance of $11.15 billion to $11.30 billion but reduced its earnings per share outlook to $14.58 to $14.78, down from the prior range of $14.95 to $15.15. This prompted analysts from JPMorgan (JPM) and UBS (UBS) to lower their price targets for the stock to $303 and $290, respectively, from $389 and $330.

Despite the first quarter meeting expectations with $2.37 billion in sales and $2.60 earnings per share, comparable sales growth of just 1% disappointed analysts who had anticipated 4.56% growth. CEO Calvin McDonald highlighted cautious consumer behavior in the U.S., noting that customers are making deliberate purchasing decisions. He emphasized, however, that Lululemon’s product innovations have been well-received, addressing what the company previously identified as a “newness problem.” This cautious sentiment aligns with broader retail trends, where inflationary pressures and economic uncertainty have tempered discretionary spending on apparel. Lululemon’s focus on premium athleisure positions it in a competitive market, where maintaining brand loyalty and justifying premium pricing are critical.

To navigate potential tariff-related cost pressures, CFO Meghan Frank outlined plans for strategic price increases, which will be modest and applied selectively across the product assortment. Additionally, the company is adjusting its supply chain, with changes expected to have a more pronounced effect in the second half of the year. These measures aim to mitigate external cost pressures while preserving margins, a critical focus given the lowered profit outlook. The stock’s year-to-date decline of approximately 29% reflects investor concerns about growth challenges in a softening retail environment. Lululemon’s ability to balance innovation, pricing, and supply chain efficiency will be pivotal in restoring investor confidence and sustaining its premium market position.

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