Lululemon cuts forecasts, blames tariffs and product issues

By Neil J Kanatt

(Reuters) -Lululemon Athletica slashed its annual profit forecast for the second quarter in a row, blaming weak U.S. business and product issues, as well as tariff costs.

Shares of the yogawear maker, which also cut its annual sales forecast, fell about 15% after the closing bell.

The company's attempts to boost sales and fight competition with weekly product launches have failed to spark a wave of buying from shoppers, as it steps into the holiday-focused second half of the year.

"Once the trailblazer in athleisure, Lululemon has lost its innovation edge, now squeezed by luxury newcomers like Alo Yoga and private-label dupes with comparable fabric tech at lower prices," said Suzy Davidkhanian, analyst at eMarketer.

"Copycat culture highlights how far the moat has shrunk."

Lululemon's struggles with merchandise management — including a heavier focus on its ailing products like lounge and social wear, and its failure to effectively tap into seasonal trends — have caused its American shoppers to turn away.

"While we continued to see positive momentum overall in our international regions ... we are disappointed with our U.S. business results and aspects of our product execution," CEO Calvin McDonald said in a statement.

"We have let our product life cycles run too long within many of our core categories," McDonald added on a post-earnings call.

The dour forecast comes as U.S. holiday spending is expected to see its steepest drop since the pandemic, according to a PwC survey. 

The company, including mitigation efforts, expects an impact of about $240 million on its 2025 gross profit from higher tariffs and the removal of the de minimis exemption. It sees a hit of around $320 million on its operating margin in 2026.

De minimis is a U.S. customs exemption that allows duty-free entry and minimal paperwork for international shipments under $800. The exemption removal became effective on August 29.

Lululemon fulfills about two-thirds of its U.S. e-commerce orders, and used the exemption through distribution centers in Canada, it said in the earnings call.

The company now expects annual revenue between $10.85 billion and $11 billion, compared to its previous outlook of $11.15 billion to $11.30.

Annual profit per share is now expected between $12.77 and $12.97, compared with previous expectations of $14.58 to $14.78 apiece. 

Lululemon is sticking to its plan to take strategic price hikes in the U.S. market to reduce the tariff impact, even as it increases markdowns overall, to clear inventory.

The company relied on U.S. import tariff hotspots Vietnam and mainland China for 40% of its manufacturing and 28% of its fabrics, respectively, as of 2024.

Revenue for the second quarter, ended August 3, rose 7% to $2.53 billion, largely in line with analysts' expectations, while earnings per share of $3.10 beat estimates of $2.88, according to data compiled by LSEG.

Comparable sales for its Americas segment declined 1% while international sales rose 15%.

(Reporting by Neil J Kanatt in Bengaluru; Editing by Alan Barona)