Lululemon shares tumble 20% after slashing annual outlook

Lululemon shares tumble 20% after slashing annual outlook

Lululemon Athletica Inc. (LULU) experienced a significant drop in its stock price, falling by nearly 20% in premarket trading on Friday, September 2, 2025. The decline was triggered by the company's revised full-year outlook, which revealed a weaker-than-expected financial performance and a substantial impact from tariffs. The Vancouver-based retailer, known for its premium yoga and activewear products, faced a challenging quarter, with shares down more than 46% year-to-date through Thursday's close.

The company reported second-quarter earnings per share (EPS) of $3.10, exceeding Wall Street expectations of $2.88. However, revenue of $2.53 billion slightly missed estimates of $2.54 billion. The gross margin contracted by 1.1 percentage points to 58.5%, and comparable sales growth was modest at 1%, missing estimates of 2.2%. The company expanded its retail footprint by adding 14 net new stores, reaching a total of 784 locations worldwide.

Lululemon revised its full-year guidance, projecting EPS of $12.77 to $12.97 and revenue of $10.85 billion to $11 billion, down from earlier estimates of up to $14.78 in EPS and $11.3 billion in revenue. The third-quarter outlook was also revised, with revenue expected to fall between $2.47 billion and $2.50 billion, below the $2.57 billion estimate, and EPS projected to be $2.18 to $2.23, against expectations of $2.93.

The downward revisions highlighted the intensifying impact of tariffs on Lululemon's operations, which rely heavily on global supply chains. CEO Calvin McDonald estimated a $240 million hit to full-year profits due to increased tariff rates and the elimination of de minimis provisions. CFO Meghan Frank elaborated that the removal of this exemption accounts for about 1.7 percentage points of the 2.2 percentage-point tariff-related profit decline projected for the year.

Beyond external pressures, internal product strategies have contributed to the slowdown. McDonald acknowledged that Lululemon's lounge and social offerings have grown stale and predictable, failing to resonate with customers, especially in the U.S. market. The company plans to boost new styles to 35% of its assortment next spring, up from 23%, while enhancing fast-track design processes.

Analysts are skeptical about the company's ability to turn around its U.S. offerings quickly enough to warrant a higher valuation for the stock. Bank of America analyst Lorraine Hutchinson noted that the company's US turn has been pushed further out and overearning on ecommerce from the use of the de minimis exemption will be unwound. Oppenheimer analyst Brian Nagel expressed concern that repositioning plans could portend further top- and bottom-line dislocations nearer term.

Lululemon faces pressure to address the issues impacting its US business and to improve its product strategy to regain investor confidence and return to its previous growth levels.

References:
[1] https://www.sharecafe.com.au/2025/09/05/lululemon-shares-tumble-on-weakened-outlook/
[2] https://finance.yahoo.com/news/live/earnings-live-lululemon-stock-drops-on-lowered-outlook-docusign-jumps-american-eagle-soars-202921353.html
[3] https://wallstreetpit.com/127387-lululemon-stock-craters-on-weak-earnings-outlook-and-240m-tariff-hit/
[4] https://www.cnbc.com/2025/09/05/analysts-bail-on-lululemon-after-guidance-missed-wall-street-estimates.html