Lululemon Athletica Inc. (LULU) Stock: Shares Plunge 20% as Tariff Concerns Hit Profit

TLDR

Table of Contents

Lululemon stock dropped 20% in premarket trading after cutting Q2 earnings guidance to $2.85-$2.90 per share, well below Wall Street’s $3.31 estimate
The company reduced full-year earnings outlook to $14.58-$14.78 from $14.95-$15.15 due to tariff impacts and weak consumer demand
Q2 revenue expected to grow just 7-8% to $2.535-$2.560 billion, missing Street expectations of $2.568 billion
Company plans modest price increases on select items and increased promotions to offset 30% China tariffs and 10% tariffs on other countries
Same-store sales grew only 1% in Q1 versus expected 2.4%, showing continued weakness in core markets

Lululemon stock took a beating Friday morning, falling 20% in premarket trading after the athletic apparel maker delivered a reality check to investors. The company slashed its second quarter earnings forecast, citing tariff pressures and cautious consumer spending.

The Vancouver-based company now expects second quarter adjusted earnings per share between $2.85 and $2.90. That’s a far cry from Wall Street’s $3.31 estimate, leaving analysts scrambling to adjust their models.

Full-year earnings took a hit too. Lululemon cut its 2025 EPS outlook to $14.58-$14.78 from the previous range of $14.95-$15.15.

lululemon athletica inc., $LULU, Q1-25. Results:
🔴 -12% Post-Market 🚨
📊 Adj. EPS: $2.60 🟢
💰 Revenue: $2.37B 🟢
📈 Net Income: $314.6M
🔎 International markets drove strong growth, up 19%, offsetting softness in U.S. sales. pic.twitter.com/E3LsaQE4VZ
— EarningsTime (@Earnings_Time) June 5, 2025

Revenue growth is slowing as well. The company expects second quarter sales to grow just 7-8% to between $2.535 billion and $2.560 billion, missing Street expectations of $2.568 billion.

CEO Calvin McDonald didn’t mince words about the challenging environment. “My sense is that in the US, consumers remain cautious right now, and they are being very intentional about their buying decisions,” he said during the earnings call.

The first quarter results painted a mixed picture. Revenue came in at $2.37 billion, slightly beating the $2.36 billion estimate. Adjusted earnings per share hit $2.60, meeting expectations.

But the devil was in the details. Same-store sales grew just 1%, well below the expected 2.4% increase. That’s a worrying sign for a brand that built its reputation on premium pricing and loyal customers.

Tariff Troubles Mount

The elephant in the room is President Trump’s tariff policy. Lululemon sources heavily from Asia, with 42% of products manufactured in Vietnam, 16% in Cambodia, and 11% in Sri Lanka according to its 2023 annual report.

CFO Meghan Frank told investors the company’s guidance assumes a 30% tariff on China and 10% on all other countries. The company plans to fight back with strategic price increases on select items.

“We are planning to take strategic price increases, looking item by item across our assortment as we typically do,” Frank said. She called the increases “modest” and said they’ll affect only a small portion of the product line.

The company is also ramping up promotions to help move inventory. Frank said second quarter guidance reflects increased discounts in the US market.

Competition Heats Up

Lululemon faces growing pressure from trendier and more affordable brands in both North America and China. The company’s signature Align yoga pants sell for up to $128 on its website, but consumers are increasingly price-sensitive.

Jefferies analyst Randal Konik wasn’t impressed with management’s strategy. “Despite Americas decline, management continues to prioritize product newness and China expansion over addressing a pullback from core customers,” he wrote.

Inventory jumped 23% to $1.7 billion in the first quarter. That’s money sitting on shelves instead of flowing to the bottom line.

At least 12 brokerages cut their price targets on the stock following the results. J.P. Morgan made the biggest slash, dropping its target to $303 from $389.

The stock closed Thursday at $330.78 and was trading around $263.50 in premarket Friday. That puts Lululemon’s forward price-to-earnings ratio at 21.46, compared to Nike’s 31.37.

Morningstar analyst David Swartz still believes the company has pricing power. “Its products are generally more expensive than others… I think it can actually raise prices to offset higher tariffs better than most of their competitors,” he told Yahoo Finance.

Frank said the company is pursuing efficiency actions in sourcing, with some changes hitting the second half of this year and more planned for 2026. The company maintained its full-year revenue outlook of $11.15-$11.30 billion despite the earnings cut.

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