Lululemon Shares Plunge on Tariff Warning, US Sales Rise Only 1%

Lululemon shares fell 18% on the Nasdaq after the Canadian sportswear brand warned of a $178.4m hit from Donald Trump's tariffs and the closure of a tax-free loophole. The US President axed the 'de minimis' rule, which allowed orders worth $800 or less into the US without paying import duties. Lululemon's products are mostly made in Asian countries subject to high levies.

Lululemon Athletica shares fell 18% on the Nasdaq following the company's warning of a $178.4 million hit from Donald Trump's tariffs and the closure of a tax-free loophole known as the de minimis rule. The de minimis rule, which allowed orders worth $800 or less into the U.S. without paying import duties, was axed by the U.S. President, affecting Lululemon's business significantly.

Lululemon, based in Vancouver, British Columbia, had been relying heavily on the de minimis exemption, shipping two-thirds of its U.S. e-commerce orders from Canada. Most of these orders were under the $800 threshold, making them eligible for the policy [1]. The change has led to a substantial increase in costs for the company.

The company's CEO, Calvin McDonald, stated that the increased tariff rates and the removal of the de minimis provision have played a significant role in the company's reduced earnings guidance for the year [1]. Lululemon expects an impact of about $240 million on its 2025 gross profit from higher tariffs and the removal of the de minimis exemption [2].

Lululemon's revenue for the second quarter, ended Aug. 3, rose by 7% to $2.53 billion, largely in line with analysts' expectations, while earnings per share of $3.10 beat estimates of $2.88 [2]. However, the company's outlook for the year has been significantly impacted by these changes.

The company is planning to implement strategic price hikes in the U.S. market to reduce the tariff impact, while also increasing markdowns overall to clear inventory [2]. Lululemon's reliance on U.S. import tariff hotspots such as Vietnam and mainland China for a significant portion of its manufacturing and fabrics has been highlighted as a key challenge [2].

The company's international growth has been a bright spot, with international sales rising by 15% compared to the same quarter last year. Lululemon has opened 63 new stores around the world since the same quarter last year and plans to open 14 more this quarter [2].

Despite these challenges, Lululemon remains confident in its ability to navigate the current economic climate, citing strong customer loyalty and a history of hypergrowth.

References:
[1] https://www.businesstimes.com.sg/companies-markets/telcos-media-tech/lululemon-says-closure-de-minimis-hole-will-crush-margin
[2] https://www.cbc.ca/news/business/lululemon-q2-earnings-1.7625890