Lululemon Cuts Its Outlook as Sales Slow and Tariffs Squeeze Profits. Its Stock Is Plunging

Lululemon shares plunged nearly 18% Friday, extending year-to-date losses past 50%, after the company lowered its full-year sales forecast to $10.85-$11 billion from $11.15-$11.30 billion. This second consecutive guidance cut was primarily driven by weak U.S. demand, disappointing same-store sales growth of just 1% against estimates, and the impact of higher tariffs, despite Q2 revenue meeting expectations and adjusted EPS exceeding them. Analysts remain skeptical, suggesting the revised outlook may still be too high given increasing competition and product execution concerns.

Analysis

Lululemon's stock plunged nearly 18% in a single day, extending its year-to-date losses to over 50%, following a significant downward revision of its full-year sales forecast for the second consecutive quarter. The company now projects sales between $10.85 billion and $11.0 billion, a notable reduction from the prior range of $11.15 billion to $11.30 billion. This revision is attributed to a confluence of negative factors, including weakening U.S. demand, which led to a disappointing same-store sales growth of just 1% year-over-year, substantially missing the 2.76% consensus estimate. Management acknowledged internal challenges, citing being "disappointed" with U.S. performance and flagging issues with "product execution." Externally, the company faces margin pressure from the removal of the de minimis exemption on imports under $800, compounding industry-wide tariff challenges. While a Q2 adjusted EPS of $3.10 beat forecasts, this was overshadowed by the top-line deterioration and bleak outlook, a sentiment echoed by Jefferies analysts who warned clients that guidance may not be low enough given rising competition and skepticism over the company's product pipeline.

Key Decisions for Investors

• Investors should exercise caution, as the second consecutive guidance cut and a significant same-store sales miss signal deteriorating fundamentals, with analyst commentary suggesting the revised outlook may still be too optimistic.
• Monitor upcoming earnings reports for any stabilization in U.S. demand and same-store sales, as well as management's commentary on rectifying product execution issues and navigating rising competition.
• Despite the stock's more than 50% year-to-date decline, the combination of operational missteps, tariff-related cost pressures, and a skeptical analyst outlook presents considerable near-term risk that may outweigh the appeal of a lower valuation.