Lululemon beat Wall Street’s Q2 earnings expectations but narrowly missed revenue forecasts. The company warned that tariffs and the removal of the de minimis exemption will cost $240 million in annual profits. Shares plunged more than 12% after hours, with the stock already down 45% in 2025.
Lululemon Earnings Beat, but Guidance Disappoints
Lululemon Athletica (NASDAQ: LULU) reported stronger-than-expected second-quarter earnings but issued a weaker full-year forecast, triggering a sharp sell-off in its stock.
The athletic apparel retailer posted Q2 earnings per share (EPS) of $3.10, topping analyst expectations of $2.88, according to LSEG data. However, revenue came in slightly light at $2.53 billion, missing the $2.54 billion estimate.
Tariffs Slash Profit Outlook
The company cut its full-year EPS outlook to a range of $12.77–$12.97, well below Wall Street’s $14.45 consensus. Full-year revenue is now expected at $10.85–$11.0 billion, compared to analyst projections of $11.18 billion.
CEO Calvin McDonald explained that tariffs and the end of the de minimis exemption have significantly increased costs:
“The increased rates and removal of the de minimis provisions have played a large part in our guidance reduction for the year,” McDonald told analysts.
Chief Financial Officer Meghan Frank noted that the policy change alone will drive 1.7 percentage points of the 2.2 percentage-point decline in profits for 2025.
Financial Performance Breakdown
Net income: $370.9 million, or $3.10 per share, vs. $392.9 million, or $3.15 per share, last year.
Gross margin: Down 1.1 points to 58.5%.
Operating margin: Down 210 basis points to 20.7%.
Comparable sales: Up just 1% vs. 2.2% expected, while U.S. same-store sales fell 4%.
Store growth: 14 new openings, bringing the total to 784 stores worldwide.
Stock Reaction
Shares sank over 12% in after-hours trading on Thursday following the announcement. Year-to-date, the stock has already lost more than 45% of its value.
Lululemon CEO Calvin McDonald will address the company’s performance in an exclusive CNBC interview on Squawk on the Street Friday.
Product Challenges in the U.S. Market
McDonald admitted that the company’s lounge and social product lines have gone stale, failing to connect with consumers.
“We have become too predictable within our casual offerings and missed opportunities to create new trends,” he said, citing long product lifecycles as a key issue.
To fix this, Lululemon plans to:
Boost new styles from 23% to 35% of its collection by spring 2026.
Enhance fast-track design capabilities to respond more quickly to market trends.
Focus on long-term brand health rather than short-term fixes.
Third-Quarter Guidance
Looking ahead, Lululemon forecasts:
Q3 revenue: $2.47–$2.50 billion vs. Wall Street’s $2.57 billion estimate.
Q3 EPS: $2.18–$2.23, well below the $2.93 expected.
What’s Next for Lululemon?
Despite current headwinds, management insists the brand’s long-term growth story remains intact.
“We are not satisfied with the results for the quarter, and we know our brand can and will perform better,” McDonald emphasized.
Lululemon’s reset strategy—focused on faster innovation, fresher assortments, and global expansion—will be critical to regaining momentum in its key U.S. market.