Lululemon Athletica Inc. (NASDAQ:LULU) fell over 15% at last check on Friday after the retailer trimmed its full-year sales and profit targets.
The athletic apparel company topped second-quarter earnings expectations, but it still grappled with softer U.S. trends.
Investors are now grappling with a lighter third-quarter guide and new trade costs, which management says will weigh on margins.
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Top Line Misses, Profit Beats
For the second quarter, revenue landed at $2.53 billion, slightly below Wall Street's view, while diluted EPS came in at $3.10, ahead of estimates.
The company projected third-quarter revenue of $2.47 billion to $2.50 billion and EPS of $2.18 to $2.23, both under consensus.
Management now sees full-year revenue of $10.85 billion to $11.00 billion and EPS of $12.77 to $12.97, down from prior expectations.
U.S. Softness Drives Reset
In the quarterly conference call, CEO Calvin McDonald said international momentum remained intact, but the U.S. lagged as shoppers showed less interest in casual "lounge and social" collections.
He acknowledged the brand leaned too long on core franchises such as Scuba, Softstream and Dance Studio, and pledged a faster cadence of newness, with the mix of fresh styles expected to rise to roughly 35% of the assortment next spring.
Tariffs And De Minimis Removal Bite
CFO Meghan Frank detailed a step-up in gross-margin pressure from higher reciprocal tariffs and the end of the U.S. de minimis exemption, which previously lowered duties on many cross-border e-commerce parcels.
The company expects tariff-related headwinds of about 220 basis points to gross margin this year and is pursuing pricing, vendor negotiations, supply-chain moves and cost controls to blunt the impact.
International Still Expanding
China revenue rose in the mid-20% range (+25% or 24% in constant currency), and the company added stores across Mainland China while opening in Italy and via franchise in Turkey and Belgium.
Lululemon named a franchise partner for India with a first store targeted for the second half of 2026, underscoring its longer-term growth runway outside North America.
What’s Next: Leadership expects the most visible benefits from product, speed-to-market and technology initiatives to show in 2026. In the near term, the focus is on rebalancing the assortment toward innovation that resonates with high-value guests, while navigating tariff costs without diluting brand positioning.
Price Action: Lululemon shares are trading lower by 19.74% to $165.40 premarket at last check Friday.
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