Lululemon Athletica’s stock prices have taken a sharp dive following the announcement of a reduced annual profit forecast for the second consecutive quarter. The company attributed this downward revision to underperformance in its U.S. operations and increased tariff expenses. Shares of the Vancouver-headquartered retailer were down approximately 17% prior to the NASDAQ market opening on Friday.
During a post-earnings call, CEO Calvin McDonald expressed discontent with the current performance of the U.S. business, despite positive momentum in international regions. Lululemon anticipates a $240 million impact on its 2025 gross profit due to higher tariffs and the elimination of the de minimis exemption, with a further $320 million impact on its operating margin in 2026.
The removal of the de minimis exemption, a U.S. customs rule allowing duty-free entry for shipments under $800, became effective on August 29. McDonald acknowledged product life cycles within key categories had been prolonged, leading to predictability in casual offerings such as softstreme, dance studio, and scuba styles.
To mitigate the tariff impact, Lululemon plans to implement strategic price increases in the U.S. market while increasing overall markdowns to clear inventory, as stated by CFO Meghan Frank. The company heavily relies on Vietnam and mainland China, which accounted for 40% of its manufacturing and 28% of its fabric sourcing in 2024.
Analysts note a shift in market dynamics, with copycat brands gaining traction at Lululemon’s expense. The company now projects annual revenue between $10.85 billion and $11 billion, down from the previous outlook of $11.15 billion to $11.30 billion. Similarly, the revised annual profit per share is expected to be between $12.77 and $12.97, compared to the earlier forecast of $14.58 to $14.78 per share.
Despite the challenging retail landscape and a projected decline in U.S. holiday spending, Lululemon remains optimistic about its resilience, backed by customer loyalty and international growth. While revenue in the Americas segment saw a 1% decline and remained flat in Canada, international sales surged by 15%. The company has expanded its global footprint with the opening of 63 new stores worldwide since the same period last year, with plans for an additional 14 openings in the upcoming quarter, focusing particularly on markets like Mexico and China.
