Lululemon shares plunge as Trump tariffs bite

outlook

Tariffs and Weakened Consumer Confidence Slam Lululemon’s Outlook

Lululemon (LULU) stock plummeted more than 19% on Friday, marking its worst trading day since March 2020. The dramatic decline followed a weak outlook for the second quarter, as the athletic apparel brand cited a “dynamic macro-environment,” rising tariffs, and softening consumer demand as key challenges ahead.

The company slashed its second-quarter adjusted earnings per share (EPS) guidance to $2.85–$2.90, well below Wall Street’s expectations of $3.31. Additionally, Lululemon cut its full-year EPS forecast from $14.95–$15.15 to $14.58–$14.78, reflecting growing concerns over profitability.

Revenue Misses Estimates as Spending Shifts

Lululemon now expects second-quarter revenue growth of 7%-8%, translating to $2.535 billion–$2.560 billion. That’s slightly short of analysts’ expectations of $2.568 billion, according to Bloomberg data. However, the company maintained its 2025 revenue guidance in the range of $11.15 billion–$11.30 billion, indicating confidence in longer-term growth.

CEO Calvin McDonald acknowledged the challenges in a company statement, saying:

“As we navigate the dynamic macro-environment, we intend to leverage our strong financial position and competitive advantages to play offense, while we continue to invest in the growth opportunities in front of us.”

First-Quarter Performance: Mixed Bag

For the first quarter, Lululemon reported $2.37 billion in revenue, just slightly above the expected $2.36 billion. Adjusted EPS landed at $2.60, meeting consensus estimates. However, same-store sales only grew by 1%, falling short of the 2.4% expected growth.

This tepid sales growth highlights ongoing consumer caution, particularly in the U.S., where shoppers are increasingly turning to discount retailers amid inflationary pressure and labor market uncertainty.

McDonald noted during the earnings call:

“My sense is that in the US, consumers remain cautious right now, and they are being very intentional about their buying decisions.”

Tariffs Taking a Toll on Retail

Lululemon is the latest in a string of retailers—including Macy’s—to revise earnings projections in response to escalating tariffs tied to former President Trump’s trade policies. The apparel brand is heavily reliant on overseas manufacturing, which exposes it to fluctuating import costs.

According to the company’s 2023 annual report:

  • 42% of products were made in Vietnam
  • 16% in Cambodia
  • 11% in Sri Lanka
  • 10% in Indonesia
  • 8% in Bangladesh

Additionally, fabric sourcing was heavily dependent on:

  • Taiwan (40%)
  • China (26%)
  • Sri Lanka (12%)

The rising cost of importing goods from these countries is now a key concern. CFO Meghan Frank shared that Lululemon’s current guidance is based on an assumed 30% tariff on Chinese imports and 10% tariffs on all other countries.

“We are planning to take strategic price increases, looking item by item across our assortment… and it will be price increases on a small portion of our assortment,” Frank said, noting the changes will be “modest.”

Pricing Power May Cushion the Blow

Despite these headwinds, some analysts remain optimistic. Morningstar’s David Swartz believes Lululemon has the flexibility to raise prices without losing customers.

“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,” Swartz told Yahoo Finance.

This premium pricing power could help the company weather the current economic environment better than many peers.

Efficiency Measures and Promotions on the Way

Frank also said the company is pursuing efficiency improvements in its supply chain, some of which will take effect in the second half of 2025, with more planned into 2026.

In the first quarter, inventory levels jumped 23% to $1.7 billion, raising questions about demand relative to supply.

To help move excess inventory and cope with weakened demand, the company plans to increase promotional activity in the U.S.

“Second-quarter guidance also reflects an increase in promotions… given consumer confidence and macroeconomic concerns as we move into the second half of the year,” Frank added.

While Lululemon remains a strong brand with long-term potential, short-term pressures from tariffs and cautious consumer behavior are clearly weighing on results. Investors will be watching closely to see whether pricing power, efficiency efforts, and brand loyalty are enough to offset the challenges of a tougher economic environment.