Lululemon Stock Craters on Weak Earnings Outlook and $240M Tariff Hit

• Lululemon  (LULU) shares dropped nearly 20% to $165.88 in premarket trading following a disappointing full-year outlook, with the stock down over 46% year-to-date amid tariff pressures and product challenges.
• Second-quarter results showed earnings per share of $3.10 beating estimates of $2.88, but revenue of $2.53 billion slightly missed $2.54 billion expectations, with gross margin at 58.5% and comparable sales up only 1%.
• The company revised full-year guidance to earnings per share of $12.77 to $12.97 and revenue of $10.85 billion to $11 billion, citing a $240 million tariff impact and plans to refresh stale product lines to regain momentum.

Lululemon (LULU) experienced a sharp decline in its stock price, dropping nearly 20% to $165.88 during premarket trading on Friday, driven by a significantly weaker full-year outlook amid pressures from tariffs. The athletic apparel retailer, renowned for its premium yoga and activewear lines, has seen its shares fall more than 46% year-to-date through Thursday’s close, reflecting ongoing market concerns about its performance in a competitive landscape dominated by shifting consumer preferences and economic factors.

In its second-quarter results, Lululemon reported earnings per share of $3.10, surpassing Wall Street expectations of $2.88, though revenue came in at $2.53 billion, slightly below the anticipated $2.54 billion. Net income for the period stood at $370.9 million, down from $392.92 million in the prior year, with earnings per share slipping to $3.10 from $3.15. The company faced margin compression, as gross margin contracted by 1.1 percentage points to 58.5%, and operating margin declined by 210 basis points to 20.7%. Comparable sales growth was modest at 1%, missing estimates of 2.2%, with same-store sales in the Americas specifically decreasing by 4%. During the quarter, Lululemon expanded its retail footprint by adding 14 net new stores, reaching a total of 784 locations worldwide.

The revised full-year guidance underscored the challenges ahead, with projected earnings per share ranging from $12.77 to $12.97, far short of the $14.45 anticipated by analysts, and revenue expected between $10.85 billion and $11 billion, compared to forecasts of $11.18 billion. For the third quarter, the company anticipates revenue of $2.47 billion to $2.50 billion, below the $2.57 billion estimate, and earnings per share of $2.18 to $2.23, against expectations of $2.93. These downward revisions highlight the intensifying impact of tariffs on the company’s operations, which rely heavily on global supply chains, particularly in regions affected by trade policies.

CEO Calvin McDonald emphasized during the earnings call that tariffs represent a substantial headwind, estimating a $240 million hit to full-year profits. He noted the role of increased rates and the elimination of de minimis provisions, which previously allowed smaller shipments to bypass certain duties, in prompting the guidance cut. CFO Meghan Frank elaborated that the removal of this exemption accounts for about 1.7 percentage points of the 2.2 percentage-point tariff-related profit decline projected for the year. McDonald described the situation as another industry shift tied to the rising cost of business, influenced by policies under President Donald Trump.

Beyond external pressures, internal product strategies have contributed to the slowdown. McDonald acknowledged that Lululemon’s lounge and social offerings have grown stale and predictable, failing to resonate with customers, especially in the U.S. market. He identified extended product lifecycles as a key issue, leading to missed opportunities in trend creation. To address these shortcomings, the company plans to boost new styles to 35% of its assortment next spring, up from 23%, while enhancing fast-track design processes. McDonald stressed a commitment to long-term brand integrity, avoiding hasty decisions that could undermine its premium positioning.

Despite the quarter’s disappointments, McDonald expressed confidence in Lululemon’s potential, stating that the brand will deliver stronger results once product innovations align better with consumer demands. The focus remains on refining offerings to drive growth, as the company navigates a sector where agility in design and supply chain management is critical amid persistent trade uncertainties and evolving retail dynamics.

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