Lululemon Athletica announced its first-quarter fiscal 2025 results on Wednesday, revealing risks from the new U.S. tariff policies and an unexpected decline in sales in the Americas market. The company lowered its full-year performance guidance, causing its stock price to drop by up to 23% in after-hours trading.
Key financial data for Lululemon’s first quarter: – Net revenue: Increased 7% to $2.4 billion, surpassing analysts’ expectations of $2.36 billion. – Comparable sales: Rose 1%, below analysts’ forecast of 2.8%. – Gross profit: Grew 8% to $1.4 billion. – Operating profit: Increased 1% to $438.6 million, with operating margin declining 110 basis points to 18.5%. – Diluted EPS: Stood at $2.60, exceeding analysts’ estimate of $2.58. – Share repurchases: The company repurchased 1.4 million shares last quarter, totaling $430.4 million. – Store count: Net addition of 3 company-operated stores, bringing the total to 770 by the end of the quarter. Regional business breakdown: – Americas net revenue: Grew 3% (4% on a constant-currency basis). – International net revenue: Increased 19% (20% on a constant-currency basis). – Americas comparable sales: Declined 2% (down 1% on a constant-currency basis). – International comparable sales: Rose 6% (up 7% on a constant-currency basis). Performance guidance: – Q2 revenue: Expected between $2.535 billion and $2.560 billion, compared to analysts’ forecast of $2.56 billion. – Q2 diluted EPS: Projected at $2.85 to $2.90, below analysts’ expectation of $3.29. – Fiscal 2025 revenue: Maintained guidance of $11.15 billion to $11.30 billion, versus analysts’ estimate of $11.24 billion. – Fiscal 2025 diluted EPS: Revised downward to $14.58 to $14.The revised guidance range of $14.15 to $14.35 per share falls below the previous estimate of $14.95 to $15.15 and slightly misses the average analyst expectation of $14.89. Due to this disappointing outlook, Lululemon’s stock dropped by 23% in after-hours trading on Thursday in New York. Year-to-date, the stock has declined nearly 14% as of Thursday’s close.
Currently, Lululemon and other retailers are navigating supply chains severely disrupted by the U.S.-China trade war initiated by President Trump. In its quarterly financial report, the company indicated that new tariffs implemented in April have increased operational costs in the U.S., potentially leading to a “significant decrease in profitability.” Analysts believe these tariff complications further challenge CEO Calvin McDonald’s goal of doubling sales between 2021 and 2026. Persistent high inflation, intensified industry competition, and promotional pressures have long been impediments to the company’s growth. Sales growth is projected to slow for the fifth consecutive year in 2025. During an earnings call with analysts, McDonald stated, “We intend to leverage our strong financial position and competitive advantages to take proactive measures while continuing to invest in immediate growth opportunities.” He admitted dissatisfaction with growth performance in the U.S. market, noting that American consumers have become more cautious and selective in their purchasing decisions, remarking, “In the U.S., consumers remain very cautious, and their buying behavior is highly selective.” To stimulate demand, management is exploring new product categories and expanding into athletic segments such as running, tennis, and golf. Lululemon also faces shifting fashion trends, with a growing consumer preference for loose-fitting styles over the brand’s iconic tight yoga pants. CFO Meghan Frank announced plans for “strategic price increases,” involving a line-by-line review of products to mitigate tariff impacts. She clarified that these adjustments would be moderate, apply only to select items, and be phased in from the latter part of the current quarter through the third quarter. The earnings release coincides with multiple retailers, including Abercrombie & Fitch and Macy’s, revising or withdrawing guidance and announcing price hikes due to uncertainties from Trump’s new tariff policies. American Eagle Outfitters has even canceled its full-year guidance.In the athleisure apparel sector, Lululemon’s competitor Gap, which owns the Athleta brand, stated last week that tariffs would impact its business by $100 million to $150 million.
Nike announced last month that it would raise prices on multiple products, though it did not explicitly link this to tariffs. During an earnings call, McDonald acknowledged that tariffs have introduced uncertainty to the business but maintained that Lululemon is “better positioned than most brands to manage through it.” According to Lululemon’s annual report, 40% of its 2024 products were manufactured in Vietnam, 17% in Cambodia, 11% in Sri Lanka, 11% in Indonesia, 7% in Bangladesh, with the remainder from other regions. The company does not own or operate manufacturing facilities and relies on suppliers for fabric production and sourcing. Frank noted that the full-year 2025 gross margin is expected to decline by approximately 110 basis points year-over-year, exceeding the previous forecast of a 60 basis point drop, primarily due to tariff increases. Risk Warning and Disclaimer: Market risks exist; invest with caution. This article does not constitute personal investment advice and does not consider individual users’ specific investment objectives, financial situations, or needs. Users should assess whether any opinions, views, or conclusions herein suit their particular circumstances. Investment decisions based on this content are made at one’s own responsibility.
