Lululemon sinks 20% with tariffs, fashion shift hitting results
Lululemon Athletica Inc. posted a second straight disappointing quarter, fueling concerns that rising competition, new tariffs and a shift away from yoga pants are derailing its ambitious growth plans.
The retailer is projecting sales in the range of $2.54 billion to $2.56 billion for its fiscal second quarter, below the average analyst estimate. Lululemon also forecast quarterly profit well below expectations and trimmed its earnings outlook for the full year.
The company’s worsening guidance “feels like death by a thousand cuts,” Jefferies analyst Randal Konik said in a note to clients. The company needs to focus on fixing results in the Americas, where there’s a pullback from core customers, said Konik, who has an underperform rating on the stock.
Shares of Lululemon tumbled 19.8% in trading on Friday, putting the stock on track for its biggest drop since March 2020. The stock had declined nearly 14% this year through Thursday’s close.
Lululemon’s move to further pare back its view for 2025 surprised investors who’ve become accustomed to breakneck growth rates from the upscale athletic-wear company. Weaker-than-expected results in the first quarter ended May 4, including a decline in comparable-store sales in the Americas, added to the disappointment.
The company and its retail peers are trying to manage supply chains that have been upended by U.S. President Donald Trump’s trade wars. Apparel and footwear production hubs in Asia, including China and Vietnam, face elevated tariff rates as the White House pushes for new trade deals.
Lululemon’s guidance assumes 30% tariffs on China and 10% on other countries.
Sales slowdown
The tariffs further complicate Chief Executive Officer Calvin McDonald’s target of doubling sales from 2021 to 2026. Rising competition and promotions in the apparel industry and years of higher inflation are also hindering the company. Sales growth is expected to slow for a fifth consecutive year in 2025.
In its quarterly filing, the company said U.S. tariffs imposed in April have raised the cost of doing business in the country and could cause “a significant reduction” in profitability. Lululemon, which usually charges around $100 or more for its popular leggings, will raise some prices in response.
“We are planning to take strategic price increases looking item-by-item across our assortment as we typically do,” Chief Financial Officer Meghan Frank said on the company’s earnings call Thursday. She added that increases will be “on a small portion of our assortment and they will be modest in nature.”
Higher prices may further deter consumers who have started to pull back their discretionary spending.
Cautious consumers
“In the U.S., consumers remain cautious right now and they are being very intentional about their buying decisions,” McDonald told analysts on the conference call.
In its previous quarterly results released in March, Lululemon had warned investors that U.S. shoppers were tightening their wallets. That, along with guidance that was disappointing, also sparked a sharp decline in the stock.
Management is looking to lift demand by entering new product categories and expanding its offerings to sports such as running, tennis and golf. Lululemon is also dealing with shifts in fashion trends, with more consumers opting for baggier styles instead of the form-fitting yoga pants for which the brand is best known.
Lululemon said it’s pleased with the early performance of new items including high-rise trousers and running shorts. But pressure from tariffs and weak store traffic is offsetting any positive feedback on new products, Bloomberg Intelligence analyst Poonam Goyal said.
“The silver lining is that the newness is being well received,” Goyal said. “But tariff and consumer uncertainty is masking it.”