Lululemon says U.S. tariffs taking a bite, but also some of its athleisure wear became ‘too predictable’
Lululemon Athletica’s stock has taken a nosedive once again as the company announced a second consecutive reduction in its annual profit forecast. The Vancouver-based yogawear retailer cited weak U.S. business performance and the impact of tariff costs as the primary reasons for the downward revision.
CEO Calvin McDonald expressed disappointment with the current results in the U.S. market during a post-earnings call. The company anticipates a significant impact on its gross profit and operating margin due to higher tariffs and the elimination of the de minimis exemption. This move is expected to result in a $240 million hit on gross profit in 2025 and a $320 million impact on operating margin in 2026.
The removal of the de minimis exemption, which allows duty-free entry for international shipments under $800, became effective on August 29. Lululemon had utilized this exemption for about two-thirds of its U.S. e-commerce orders through distribution centers in Canada.
In an effort to mitigate the tariff impact, Lululemon plans to implement strategic price increases in the U.S. market while also increasing markdowns to clear inventory. The company currently relies on manufacturing from Vietnam and mainland China for 40% and 28% of its fabrics, respectively.
Despite the challenges in the U.S. market, Lululemon continues to see growth in its international segments. Revenue for the Americas segment declined by 1%, while international sales saw a 15% increase. The company remains focused on expanding its presence in Mexico and China, with plans to open 14 new stores this quarter.
Analysts believe that Lululemon is facing increased competition from luxury newcomers and private-label brands offering similar fabric technology at lower prices. The company, once a trailblazer in athleisure, is now being challenged to maintain its innovation edge in a saturated market.
Despite the setbacks, McDonald remains confident in Lululemon’s ability to navigate the current retail landscape. The company’s strong customer loyalty and international growth strategies position it well to overcome the current challenges and continue its expansion efforts.
As Lululemon grapples with changing market dynamics and tariff impacts, it remains to be seen how the company will adapt and evolve to stay ahead in the competitive athleisure industry.
