Lululemon Stock Drops Sharply as Tariffs and Weak Demand Hit Outlook

Lululemon

Stock Suffers Worst Day Since 2020

Lululemon (LULU) shares plunged over 19% on Friday, marking their biggest one-day drop since March 2020. The decline came after the athleticwear brand warned that profits will likely fall short due to a tough economic environment, rising tariff concerns, and slower consumer spending.

The company revised its second-quarter earnings forecast, now expecting adjusted earnings per share (EPS) to fall between $2.85 and $2.90, well below Wall Street’s forecast of $3.31. It also lowered its full-year EPS guidance from a range of $14.95–$15.15 to $14.58–$14.78.

Sales Forecast Falls Short

Lululemon projects second-quarter revenue to grow 7% to 8%, reaching between $2.535 billion and $2.560 billion. That’s slightly under expectations of $2.568 billion, based on Bloomberg data.

Despite the weaker near-term forecast, the company is keeping its 2025 revenue target steady at $11.15 billion to $11.30 billion.

CEO Calvin McDonald stated:

“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: A Mixed Bag

For the first quarter, Lululemon reported:

  • Revenue of $2.37 billion (slightly above the expected $2.36 billion)
  • Adjusted EPS of $2.60, meeting forecasts
  • Same-store sales up just 1%, missing the expected 2.4%

These results come at a time when consumer confidence is slipping, and many shoppers are turning to lower-cost retailers as inflation and job worries continue to shape spending habits.

McDonald acknowledged the shift:

“In the US, consumers remain cautious right now, and they are being very intentional about their buying decisions.”

Trump-Era Tariffs Take a Toll

Lululemon joins other retailers—like Macy’s—in cutting earnings outlooks as Trump-era tariffs come back into play. These trade measures have raised the cost of imported goods, putting pressure on margins.

The company’s supply chain relies heavily on overseas manufacturing:

  • 42% of its products come from Vietnam
  • 16% from Cambodia
  • 11% from Sri Lanka
  • 10% from Indonesia
  • 8% from Bangladesh

It also sources fabric from:

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

CFO Meghan Frank explained that the company’s forecast assumes a 30% tariff on Chinese goods and a 10% tariff on all other countries. To offset this, Lululemon plans targeted price increases.

“We are looking at our product mix item by item and making modest price increases where necessary,” Frank said.

Can Lululemon Raise Prices Successfully?

Despite the current challenges, some analysts believe Lululemon has the brand strength to pass on some of these costs.

David Swartz, an analyst at Morningstar, told Yahoo Finance:

“Lululemon does have pricing power… It can raise prices to offset higher tariffs better than most of their competitors.”

Lululemon’s products are already positioned in the premium segment, which may help absorb price hikes without losing too many customers.

Boosting Efficiency and Managing Inventory

To help balance rising costs, Lululemon is also working on improving sourcing and operational efficiency. Some of these changes will take effect later this year, with more planned into 2026.

One red flag: Inventory surged 23% in Q1, reaching $1.7 billion. This rise could force the company to ramp up promotions, especially if demand remains weak.

Frank confirmed that second-quarter guidance includes increased promotional activity, especially in the U.S.:

“We’re being mindful of the economic environment and planning more promotions as we head into the second half of the year.”