Lululemon (LULU) shares fell 20% in after-hours trading. The drop came after the company warned that profits would be lower than expected. The company cited a “dynamic macro environment” as the reason for the reduced outlook.
Updated Earnings Forecast
The company now expects second-quarter adjusted earnings per share (EPS) to be between $2.85 and $2.90. Wall Street analysts had forecast EPS of $3.31. Lululemon also lowered its full-year EPS forecast to between $14.58 and $14.78, down from a previous range of $14.95 to $15.15.
“In a dynamic macro environment, we intend to use our strong financial position and competitive advantages to attack,” CEO Calvin McDonald said. He added that Lululemon will continue to invest in growth opportunities.
Revenue and Sales Projections
For the second quarter, Lululemon expects revenue to rise 7%–8% to between $2.535 billion and $2.560 billion. This falls short of the $2.568 billion that analysts predicted, according to Bloomberg data. Despite the lower profit outlook, the company reaffirmed its full-year revenue target of $11.15 billion to $11.3 billion for 2025.
First-Quarter Performance and Consumer Confidence
Lululemon reported mixed results for the first quarter. Revenue reached $2.37 billion, just above the $2.36 billion that analysts expected. Adjusted EPS of $2.60 matched forecasts. However, same-store sales rose only 1%, below the 2.4% gain expected by Wall Street.
McDonald said on the earnings call that U.S. consumers remain cautious. He noted that weak consumer confidence and concerns about inflation and the job market have made shoppers seek value at discount retailers.
Tariff Concerns and Sourcing Risks
Lululemon joins other retailers, such as Macy’s (M), in cutting earnings guidance as new tariffs come into effect. The company sources a large portion of its products from Asia:
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42% of products are made in Vietnam
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16% in Cambodia
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11% in Sri Lanka
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10% in Indonesia
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8% in Bangladesh
In addition, 40% of Lululemon’s fabric comes from Taiwan, 26% from mainland China, and 12% from Sri Lanka.
McDonald said that current tariff patterns create uncertainty for retailers. He explained that consumers try to assess how tariffs will affect their daily lives.
Price Increases and Efficiency Efforts
CFO Meghan Frank told investors that Lululemon’s guidance assumes a 30% tariff on China and a 10% tariff on all other countries. The company plans to raise prices on a limited number of products. These increases will be “modest” and targeted on a product-by-product basis.
Frank also noted that Lululemon has implemented efficiency measures in sourcing. She said these actions will impact the second half of this year and into 2026.
Morningstar analyst David Swartz told Yahoo Finance that he believes Lululemon still has pricing power. He noted that the brand’s products typically carry higher price tags than competitors. Swartz said Lululemon can raise prices more easily to offset higher tariffs.
Inventory Growth and Promotional Activity
Inventory grew 23% in the first quarter, reaching $1.7 billion. Frank said that the second-quarter guidance also reflects increased promotional activity in the U.S. This step was taken because of concerns about consumer confidence and economic uncertainty in the second half of the year.
