Lululemon second-quarter earnings fall short of expectations

Lululemon shocked investors as its shares plunged 20% following a disappointing earnings outlook and a projected $240 million tariff hit. The company, known for its premium athletic apparel, revealed that rising costs and the removal of the de minimis exemption have hurt profits and dampened growth expectations. This marks one of the sharpest declines in Lululemon’s recent history, leaving analysts questioning its ability to recover momentum in the U.S. market.

Second-quarter results fall short of expectations

Lululemon’s latest earnings report showed mixed results. The company beat Wall Street’s earnings-per-share forecast at $3.10 versus $2.88 expected, but missed slightly on revenue at $2.53 billion compared with $2.54 billion expected. Net income fell to $370.9 million, down from $392.9 million a year earlier. Gross margin slipped 1.1 percentage points to 58.5%, while operating margin declined 210 basis points to 20.7%.

Tariffs and the removal of de minimis exemption

CEO Calvin McDonald highlighted the impact of President Donald Trump’s tariffs on apparel imports. According to Chief Financial Officer Meghan Frank, the elimination of the de minimis exemption—previously excluding smaller shipments from tariffs—was particularly damaging, accounting for 1.7 percentage points of the 2.2 percentage-point tariff-related decline in profits expected for the year. This change, combined with higher import duties, is projected to cost Lululemon approximately $240 million in fiscal 2025.

Guidance cut hits investor confidence

For the full fiscal year, Lululemon now expects earnings per share between $12.77 and $12.97, well below Wall Street’s forecast of $14.45. Revenue is projected to reach between $10.85 billion and $11 billion, compared with analyst expectations of $11.18 billion. For the third quarter, the company anticipates revenue between $2.47 billion and $2.50 billion, with earnings per share of $2.18 to $2.23—far short of the $2.93 estimate.

Stock performance and market reaction

Shares of Lululemon tumbled 20% in extended trading after the announcement, adding to a difficult year in which the stock has fallen more than 45% as of early September 2025. The decline reflects growing investor concerns about the company’s ability to withstand both global trade challenges and internal product-cycle weaknesses.

Product challenges weigh on U.S. momentum

McDonald admitted that the company allowed product lifecycles to “run too long,” particularly in lounge and casual categories. He noted that Lululemon’s casual offerings had become predictable and stale, failing to resonate with U.S. consumers. This misstep led to declining same-store sales in the Americas, which fell 4%, while overall comparable sales grew just 1% compared with 2.2% expected by Wall Street.

Plans to reset product innovation

To regain market momentum, Lululemon intends to increase the share of new product styles from 23% to 35% next spring. The company is also investing in faster design and innovation processes. McDonald emphasized that Lululemon will avoid making short-term decisions that could harm the brand long term, focusing instead on renewing its appeal through fresh styles and faster product development.

Store expansion continues globally

Despite challenges in the U.S., Lululemon added 14 net new stores during the second quarter, bringing its global total to 784. Expansion in international markets remains a growth lever for the brand, particularly in regions less affected by U.S. tariffs.

Industry-wide pressures

Lululemon’s struggles highlight broader challenges in the retail sector, where companies face rising costs, changing consumer preferences, and international trade disputes. Tariffs on imports, combined with higher labor and logistics expenses, have put pressure on profit margins across the apparel industry. This mirrors difficulties faced by other major fashion retailers such as Nike and Adidas, which have also had to adapt to shifting trade and cost structures.

Future outlook

Looking ahead, Lululemon’s ability to rebound depends on three factors: successful product reinvention, cost management amid tariff challenges, and restoring sales momentum in the U.S. While its global presence and brand strength provide resilience, the company must execute quickly to avoid further erosion of investor confidence.

Key takeaways

• Lululemon shares dropped 20% after cutting its earnings outlook.
• Tariffs are expected to cut profits by $240 million in fiscal 2025.
• Second-quarter revenue slightly missed forecasts, while net income declined.
• U.S. sales weakened due to stale casual offerings, with same-store sales down 4% in the Americas.
• New product innovation and global expansion remain crucial to recovery.

Conclusion

Lululemon is at a crossroads. The combination of external pressures like tariffs and internal missteps in product strategy has shaken investor confidence. However, with plans to refresh its product range and strengthen design capabilities, the company aims to recapture growth. Whether these changes will be enough to overcome a difficult retail environment remains to be seen. Stay informed with the latest Forex trading news and analysis. Visit our website now at: https://fixiomarkets.com/en/prex-blogs