Lululemon shares plunge as earnings guidance falls well short of estimates

Lululemon shares plunged over 10% in extended trading after the company issued a significantly weaker-than-anticipated full-year outlook, citing a projected $240 million impact from tariffs and disappointing U.S. business performance. While second-quarter earnings of $3.10 per share surpassed estimates, revenue of $2.53 billion slightly missed, and overall comparable sales grew only 1%. The company now projects full-year EPS of $12.77-$12.97, well below Wall Street's $14.45 estimate, and full-year revenue of $10.85-$11 billion, signaling a challenging forward period despite its Q2 earnings beat.

Analysis

Lululemon's stock plunged over 10% in after-hours trading following the release of a significantly weaker-than-expected full-year outlook, which overshadowed a second-quarter earnings beat. The company's revised full-year EPS guidance of $12.77-$12.97 falls substantially short of the $14.45 Wall Street consensus, with a projected $240 million negative impact from tariffs cited as a key headwind. The weakness is concentrated in its core market, evidenced by a 4% decline in same-store sales in the Americas and a CEO statement citing disappointment with U.S. business results and "product execution." This regional underperformance dragged overall comparable sales growth down to just 1%, missing the 2.2% estimate. Further compounding the negative sentiment, guidance for the third quarter was also well below expectations, with projected EPS of $2.18-$2.23 versus an estimate of $2.93. This news accelerates an existing downtrend for the stock, which was already down over 45% year-to-date.

Key Decisions for Investors

• The severe downward revisions to both Q3 and full-year guidance will force a significant recalibration of valuation models, suggesting continued downward pressure on the stock in the near term.
• Investors should closely monitor the upcoming CEO interview for specific details on the plan to address the stated "product execution" issues and revitalize the core U.S. business, as the lack of a credible strategy could prolong the stock's underperformance.
• While international growth provides some offset, the 4% same-store sales decline in the Americas raises a critical risk of brand saturation or competitive pressure in Lululemon's most important market, warranting caution for long-term holders.
• Given the stock is already down over 45% YTD, short-sellers may see this as a confirmation of their thesis, while potential buyers should wait for signs of stabilization in U.S. sales trends before considering a position.