Lululemon shares plunged approximately 20% on Friday after the athletic apparel retailer beat first-quarter earnings expectations but reduced its full-year guidance, citing challenges in the “dynamic macroenvironment” including tariffs and a slowing U.S. economy.
First Quarter Performance: Beating Expectations
Despite the grim outlook, Lululemon delivered solid first-quarter results that exceeded analyst expectations:
Earnings per share: 2.60vs.2.58 expected
Revenue: 2.37billionvs.2.36 billion expected
Net income: 314million(2.60 per share) compared with 321million(2.54 per share) a year earlier
First-quarter revenue: 2.37billion,upfrom2.21 billion in 2024
The company’s comparable sales rose 1% year-over-year, though this was below the 3% increase Wall Street had anticipated. The sales growth breakdown showed:
2% decrease in the Americas
6% increase internationally
Gross margin came in at 58.3%, ahead of the 57.7% analysts had projected.
Full-Year Guidance Reduction: A Sign of Caution
Lululemon significantly reduced its full-year earnings guidance, reflecting growing concerns about the business environment:
New full-year EPS guidance: 14.58to14.78 (previously 14.95to15.15)
Analysts’ expectations: $14.89
Second-quarter EPS guidance: 2.85to2.90 vs. Wall Street’s $3.29 expectation
Second-quarter revenue guidance: 2.54billionto2.56 billion (vs. analysts’ $2.56 billion)
Full-year revenue guidance: 11.15billionto11.3 billion (unchanged from previous forecast, but below analysts’ $11.24 billion expectation)
CEO Calvin McDonald acknowledged the challenges during the earnings call, stating he was “not happy” with U.S. growth and noting that American consumers are being “cautious and intentional about their buying decisions.”
Strategic Response: Price Increases and Cost Management
To mitigate the impact of tariffs and economic uncertainty, Lululemon plans to implement strategic price increases:
Selective price hikes: “Strategic price increases, looking item by item across our assortment”
Modest increases: “They will be modest in nature”
Implementation timeline: Starting in the second half of the current quarter and continuing into the third quarter
CFO Meghan Frank explained that these price increases will affect only a small portion of the product assortment, aiming to balance maintaining competitiveness with offsetting increased costs.
Tariff Impact and Supply Chain Considerations
The company is navigating a complex tariff environment:
Current tariff assumptions: 30% incremental tariff on China and 10% on remaining sourcing countries
Manufacturing footprint:
- 40% of products manufactured in Vietnam
- 17% in Cambodia
- 11% in Sri Lanka
- 11% in Indonesia
- 7% in Bangladesh
- Remainder in other regions
Notably, Lululemon doesn’t own or operate any manufacturing facilities, relying entirely on suppliers for production and fabric provision.
Industry Context: A Broader Retail Challenge
Lululemon’s guidance reduction comes amid a broader trend of retailers adjusting their outlooks due to economic uncertainty:
Competitors’ actions:
- Abercrombie & Fitch and Macy’s have slashed profit outlooks
- American Eagle Outfitters withdrew full-year guidance
- Gap (owner of Athleta) expects 100−150 million tariff impact
- Nike announced broad price increases
This industry pattern suggests Lululemon is facing macroeconomic challenges that affect the entire apparel sector, not just company-specific issues.
Related topics:
