Lululemon Athletica witnessed a significant drop in its stock value as it revised its annual profit forecast for the second consecutive quarter. The company attributed the downward adjustment to underperforming U.S. business operations and increased tariff expenses. Shares of the Vancouver-based activewear and fashion retailer plummeted by approximately 17% before the NASDAQ market opening on Friday.
During a post-earnings call on Thursday, CEO Calvin McDonald expressed dissatisfaction with the current U.S. business results, despite observing positive momentum in international markets. Lululemon anticipates a negative impact of around $240 million on its 2025 gross profit due to elevated tariffs and the elimination of the de minimis exemption. Additionally, the company foresees a decrease of approximately $320 million in its operating margin for 2026.
The removal of the de minimis exemption, a U.S. customs policy enabling duty-free entry and streamlined paperwork for international shipments valued under $800, took effect on August 29. McDonald acknowledged that Lululemon had prolonged product life cycles in core categories and had become overly predictable in its casual offerings, such as softstreme, dance studio, and scuba styles.
Despite facing challenges from tariff impacts, Lululemon plans to implement strategic price increases in the U.S. market to mitigate the effects. The company aims to clear inventory by raising prices while also increasing overall markdowns. As of 2024, Lululemon relied on Vietnam and mainland China for 40% of its manufacturing and 28% of its fabrics.
Analysts noted that copycat brands are gaining market share, posing a threat to Lululemon’s dominance. The company adjusted its annual revenue outlook to between $10.85 billion and $11 billion, down from the previous projection of $11.15 billion to $11.30 billion. Profit per share expectations were revised to fall between $12.77 and $12.97, compared to the earlier forecast of $14.58 to $14.78 per share.
In the second quarter ending on August 3, Lululemon reported a revenue increase of seven per cent to $2.53 billion, aligning with analysts’ expectations. Earnings per share amounted to $3.10, surpassing estimates of $2.88, according to data from LSEG.
The company’s challenges coincide with a projected decline in U.S. holiday spending, as indicated by a PwC survey. Analysts highlighted Lululemon’s loss of innovation edge and increased competition from luxury newcomers and private-label imitations offering similar fabric technology at lower prices.
Despite these obstacles, Lululemon remains confident in its ability to navigate the retail landscape due to its strong customer loyalty cultivated over years of rapid growth. While revenue in the Americas segment decreased by one per cent and remained stagnant in Canada, international sales surged by 15 per cent. Lululemon has opened 63 new stores worldwide since the same quarter last year and plans to launch an additional 14 stores in the current quarter, with a particular focus on expanding in Mexico and China.