Lululemon Cuts Its Outlook as Sales Slow and Tariffs Squeeze Profits. Its Stock Is Plunging
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News Summary
Lululemon Athletica (LULU) shares plunged on Friday after the athletic apparel retailer lowered its outlook, citing sluggish U.S. demand and higher tariffs. The stock was down nearly 18% in recent trading, bringing its year-to-date losses to over 50%. Lululemon cut its full-year sales forecast to $10.85 billion-$11 billion, down from $11.15 billion-$11.30 billion, marking the second consecutive quarter the company has trimmed its guidance. While Q2 revenue was largely in line with estimates, same-store sales rose just 1% year-over-year, missing analysts' 2.76% call due to a drop in U.S. demand. The CEO expressed disappointment with the U.S. business and “aspects of our product execution.” The CFO noted “industry-wide challenges, including higher tariff rates” and increased costs tied to the Trump administration's removal of the de minimis exemption, which previously allowed packages under $800 to enter the U.S. without duties. Jefferies analysts suggested the guidance “is not low enough” given rising competition and skepticism about the company's new product pipeline.
Background
Lululemon Athletica is a prominent athletic apparel retailer known for its premium yoga wear and athleisure products. The company has a strong presence in the North American market and has been expanding internationally. Adjustments to earnings guidance are typically significant signals regarding market expectations for a company's future performance. In 2025, the Trump administration removed the de minimis exemption, a policy that previously allowed imported packages valued under $800 to enter the U.S. without import duties. This move was intended to protect domestic industries and increase tariff revenue but has simultaneously raised import costs for retailers relying on international supply chains, particularly those manufacturing in Asia.
In-Depth AI Insights
What are the deeper reasons behind Lululemon's struggles, beyond just macro conditions and tariffs? - Lululemon's challenges likely extend beyond simple macroeconomic headwinds. Management's disappointment with “product execution” and analysts' skepticism about whether “new styles will resonate” suggest potential issues with brand appeal or product innovation. - Increased competition is a critical factor, especially as the athleisure market becomes more saturated with a greater number of affordable alternatives. Lululemon's premium pricing strategy may face greater challenges when consumer purchasing power is constrained, necessitating a re-evaluation of its value proposition. What are the long-term implications of the Trump administration's removal of the de minimis exemption for Lululemon and the broader retail sector? - This policy change directly increases import costs for retailers like Lululemon, particularly for models that ship directly from overseas factories to U.S. consumers. This not only squeezes profits but could also lead to higher merchandise prices, ultimately passed on to consumers. - Strategically, the move aims to incentivize companies to reshore production to the U.S. or North America to avoid tariffs. However, for retailers with established complex global supply chains, such a restructuring is costly and time-consuming, making it difficult to implement in the short term, further exacerbating operational pressures. - In the long run, if more companies are compelled to reorganize their supply chains, it could lead to significant shifts in global trade patterns and potentially drive fundamental changes in the retail industry's production cost structure.