Lululemon Athletica Inc. reported first-quarter earnings that slightly exceeded Wall Street’s expectations, but the company tempered its full-year outlook, citing a dynamic macroenvironment. This proclamation sent shares plummeting approximately 23% in extended trading, reflecting investor concerns about the brand’s future performance amid economic uncertainties.

Key Financial Highlights

• Earnings per share (EPS): $2.60 vs. $2.58 expected
• Revenue: $2.37 billion vs. $2.36 billion expected

Despite marginally surpassing revenue and EPS estimates, Lululemon revised its full-year earnings per share guidance downward to a range of $14.58 to $14.78, a decrease from the previous forecast of $14.95 to $15.15. This adjustment reflects the company’s cautious stance in the face of economic headwinds.

Leadership’s Perspective

Lululemon’s leadership addressed the challenges and strategic responses during the earnings call.

We intend to leverage our strong financial position and competitive advantages to play offense, while we continue to invest in the growth opportunities in front of us.
Calvin McDonald, CEO, Lululemon

However, McDonald also expressed dissatisfaction with the company’s U.S.growth, noting that not happy with the U.S. growth and said U.S. consumers are being cautious and intentional about their buying decisions.

Strategic Price Adjustments

To mitigate the impact of tariffs, Lululemon plans to implement strategic price increases on select items.

It will be price increases on a small portion of our assortments, and they will be modest in nature.
Meghan Frank, CFO, Lululemon

These adjustments are expected to roll out in the second half of the current quarter and into the third quarter. This approach allows the company to offset tariff costs without significantly deterring price-sensitive consumers.

Broader Retail Context

Lululemon’s report aligns with a trend among retailers who are reducing guidance and raising prices due to economic uncertainty and tariffs. Companies like Abercrombie & Fitch and Macy’s have also slashed their profit outlooks, while American Eagle Outfitters withdrew their full-year guidance altogether. Gap, which owns Athleta, anticipates a $100 million to $150 million impact from tariffs, and Nike has announced price increases on a range of products.

Tariff Impact and Mitigation

Frank clarified that the company’s outlook assumes the current 30% incremental tariff on China and an incremental 10% levy on the remaining countries where the retailer sources from. In 2024, Lululemon’s manufacturing footprint was diversified, with 40% of products made in Vietnam, 17% in Cambodia, 11% in Sri Lanka, 11% in Indonesia, 7% in Bangladesh, and the remainder in other regions. This diversification strategy aims to reduce reliance on any single contry and mitigate tariff risks.

Key Performance Indicators

• Comparable Sales: Increased 1% year-over-year (vs. 3% expected), including a 2% decrease in the Americas and a 6% increase internationally.
• Gross Margin: 58.3% (vs. 57.7% expected). Though,full-year gross margins are expected to decrease by approximately 110 basis points,driven by increased tariffs.

Looking Ahead

Lululemon anticipates second-quarter revenue to be between $2.54 billion and $2.56 billion, with full-year revenue projected at $11.15 billion to $11.3 billion,unchanged from the previous forecast. The company expects second-quarter earnings per share to be in the range of $2.85 to $2.90, compared to Wall Street’s expectation of $3.29.