Lululemon Stock Plunges 20% on Weak Outlook, Tariff Fears, and Slowing U.S. Sales

Lululemon’s latest earnings report delivered a mix of modest outperformance and heavy disappointment, as the athleticwear giant topped Q1 revenue and EPS expectations but slashed full-year guidance, triggering a 20% stock plunge. Investors reacted harshly to a confluence of headwinds: disappointing comparable sales, tariff-related margin pressure, and a tepid Q2 outlook. Though revenue hit the high end of guidance and gross margin improved, signals of a cautious U.S. consumer, weaker international momentum, and an underwhelming product pipeline combined to sour sentiment. The stock landed at $264 and has struggled to bounce, suggesting technical damage and a crisis of confidence among investors.

For the fiscal first quarter, Lululemon posted revenue of $2.4 billion, ahead of the $2.36 billion consensus. EPS came in at $2.60, a penny above estimates, while gross margin expanded 60 basis points year-over-year to 58.3%, thanks to lower product costs and more efficient markdown activity. However, same-store sales increased just 1% — well below Wall Street’s 3% target — with a surprising 2% decline in the Americas weighing down performance. By contrast, international markets like China and the Rest of World segments grew revenue by 22% and 17% in constant currency, respectively, although that too marked a deceleration from prior quarters.

The biggest story out of the report was tariffs. Management cited a “dynamic macroenvironment,” with CFO Meghan Frank confirming that full-year gross margins are now expected to fall by 110 basis points, primarily due to the impact of increased import levies. Lululemon is assuming a 30% tariff on Chinese goods and an additional 10% on other key sourcing regions like Vietnam and Cambodia. The company intends to offset some of this pressure through strategic price increases — described as “modest” and “targeted” — but those won’t fully take effect until the back half of the year, leaving Q2 especially exposed to margin degradation.

Consumer behavior also played a significant role in the outlook revision. CEO Calvin McDonald acknowledged on the earnings call that U.S. shoppers are becoming more “intentional” in their purchases, a corporate euphemism for pullback. While management claimed that brand strength, community engagement, and new product innovation remain intact, the 1% comp and 2% U.S. revenue growth painted a picture of cautious domestic demand. Despite growth in women’s categories like Align and new offerings such as “Daydrift” and “BeCalm,” Lululemon appears to be struggling to reignite the type of excitement and volume that drove its prior surges.

On inventory, the company is walking a fine line. Dollar inventories rose 23% year-over-year, while unit growth was up 16%, partly due to higher average unit costs from tariffs and FX. Lululemon indicated its current inventory levels are “healthy” and aligned with expectations for newness and innovation, but the elevated stockpile in a promotional retail environment raises questions about markdown risk later this year. SG&A spending also expanded to 39.8% of revenue, up from 38.1% a year ago, driven in part by FX losses and continued investment in store labor and marketing.

Guidance was the final nail. For Q2, Lululemon sees EPS between $2.85 and $2.90, well below consensus of $3.31. Revenue is forecasted between $2.535 billion and $2.56 billion, a touch shy of estimates. Full-year EPS guidance was cut to $14.58–$14.78 from a prior $14.95–$15.15 range, reflecting the impact of tariffs and margin headwinds. Still, the company reaffirmed full-year revenue guidance of $11.15 billion–$11.3 billion, banking on a rebound in international momentum and ongoing product innovation.

Looking ahead, the key question is whether Lululemon can reignite U.S. growth, navigate tariff fallout without excessive price hikes, and re-accelerate its international business. Bulls argue that a 20% selloff is an overreaction given only a 2% cut to EPS guidance, and point to strong gross margins and a robust innovation pipeline as signs of resilience. Bears see a brand losing steam in its core market, exposed to tariff inflation and overvalued based on its current growth profile. For now, the chart is broken, the growth narrative is under pressure, and Lululemon has work to do to win back Wall Street.