Shares in Lululemon Athletica (NASDAQ: LULU) plunged 21.91% in after-hours trading after the Vancouver-based activewear company joined a string of retailers to cut full-year earnings guidance.
Despite posting better-than-expected first-quarter results, the company now expects full-year diluted earnings per share (EPS) of US$14.58 to US$14.78, down from prior guidance of US$14.95 to US$15.15.
Due to cautious U.S. consumers and Trump tariffs as headwinds, second-quarter earnings are also forecast to come in between US$2.85 and US$2.90 per share — well under the consensus estimate of US$3.29.
While CEO Calvin McDonald acknowledged the uncertainty that tariffs have brought to the business, he believes the brand is “better positioned than most” to navigate the current environment.
In response to tariffs and fears about a slowing U.S. economy, McDonald shared plans to leverage the company’s strong financial position and competitive advantages to play offense, while continuing to invest in growth opportunities in front of them.
To offset the effect of tariffs and buying decisions by consumers, the company is planning to take “strategic price increases, looking item by item across its product range.
“It will be price increases on a small portion of our assortments, and they will be modest in nature,” said Chief Financial Officer Meghan Frank.
Price hikes are expected to roll out toward the second half of the current quarter and into the third quarter.
Frank told the market that the company’s revised earnings outlook assumes:
The current 30% incremental tariff on China. An incremental 10% levy on the remaining countries the retailer sources from.
Overall, Frank expects full-year gross margins to decrease by around 110 basis points versus 2024, down from its prior guidance of a 60-basis point drop.
First-quarter result
- Earnings per share: $2.60 vs $2.58 expected
- Revenue: $2.37 billion vs $2.36 billion expected
- Comparable sales rose 1% year-on-year for the quarter
- 2% decrease in the Americas and 6% increase internationally
- Gross margin was 58.3% vs. the 57.7% analysts predicted
Given that Lululemon doesn’t own or operate any manufacturing facilities – with the vast majority of its products being made in Asia – the company is particularly exposed to tariff shifts.
During 2024 40% of Lululemon’s products were manufactured in Vietnam, 17% in Cambodia, 11% in Sri Lanka, 11% in Indonesia, 7% in Bangladesh and the remainder in other regions.
Trump’s 2 April tariff announcement has already forced several retailers — including Macy’s, American Eagle, and Abercrombie & Fitch — to revise or withdraw their guidance.
Lululemon’s rival in the athleticwear category, Gap - which owns the athleisure brand Athleta – told the market last week that it expects tariffs to impact its business by $100 million to $150 million.
Meanwhile, Nike told the market last month it would begin raising prices on a wide range of products, though it did not specify whether tariffs were the reason for the hikes.
Thursday’s after-hours selloff wiped more than US$20 billion from Lululemon’s market cap.
Year-to-date, the stock’s shares are down over 30%, with much of the drop concentrated in the past 24 hours.
