Lululemon shares tumbled 20% in after-hours trading following a disappointing full-year outlook, as the impact of tariffs significantly weighed on the company’s profit forecast. While the athletic apparel maker managed to surpass earnings estimates for its second quarter, revenue fell slightly short of expectations, amplifying concerns among investors already rattled by mounting challenges.
The company now expects full-year earnings between $12.77 and $12.97 per share, well below analyst expectations of $14.45. Revenue guidance was also trimmed, projected at $10.85 billion to $11 billion, compared with Wall Street’s forecast of $11.18 billion. Lululemon estimates that tariffs will take a $240 million bite out of annual profits.
CEO Calvin McDonald acknowledged that shifting industry conditions, particularly around tariffs and higher costs, are driving the downward revisions. He highlighted the increased rates and the removal of de minimis provisions, which once exempted smaller shipments from tariffs, as a key factor in the profit squeeze.
For the second quarter, the company reported earnings of $3.10 per share, topping expectations of $2.88. Net income reached $370.9 million, compared with $392.92 million, or $3.15 per share, in the same period a year earlier. Revenue came in at $2.53 billion, narrowly missing estimates of $2.54 billion. Gross margin slipped 1.1 points to 58.5%, while operating margin fell 210 basis points to 20.7%.
Chief Financial Officer Meghan Frank said the elimination of the de minimis exemption represents about 1.7 points of the 2.2 percentage-point tariff-related decline in profit anticipated for the year. Meanwhile, sales trends revealed continued weakness: same-store sales in the Americas dropped 4%, while overall comparable sales rose just 1%, below expectations of 2.2%.
Lululemon added 14 net new stores in the quarter, bringing its total count to 784 globally. However, McDonald admitted that the company has allowed its product lifecycles to run too long, particularly in its lounge and social categories, leaving collections “too predictable” and less appealing to U.S. consumers. He acknowledged that the lounge offerings have become stale and failed to resonate with customers.
Looking ahead, Lululemon plans to boost innovation by increasing the share of new styles in its assortment from 23% to 35% by next spring. The company also intends to strengthen fast-track design capabilities to better capture emerging trends. McDonald stressed that while near-term results have been disappointing, the brand remains committed to long-term growth without making rash decisions that could harm its identity.
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