Apparel giant slashes guidance despite Q1 beat; cites cautious US consumers and Trump tariffs as headwinds
Lululemon Athletica (NASDAQ:LULU) shares dropped sharply on Thursday, falling 1.32% in regular trading before plunging 21.91% in after-hours trade, after the company cut its full-year earnings outlook despite posting better-than-expected first-quarter results.
The Vancouver-based activewear company now expects full-year diluted earnings per share (EPS) of US$14.58 to US$14.78, down from prior guidance of US$14.95 to US$15.15. Second-quarter earnings are also projected to come in significantly below Wall Street expectations, with a forecast range of US$2.85 to US$2.90 per share—well under the consensus estimate of US$3.29.
“As we navigate the dynamic macro-environment, we intend to leverage our strong financial position and competitive advantages to play offense,” CEO Calvin McDonald said in a statement.
Q1 results beat, but signs of softness emerge
Lululemon delivered first-quarter revenue of US$2.37bn, narrowly exceeding analyst expectations of US$2.36bn. EPS also beat slightly, coming in at US$2.60, compared with consensus of US$2.58.
However, comparable sales rose just 1%—below Wall Street’s expected 3%—with a 2% decline in the Americas partially offset by 6% international growth. Gross margin, however, came in strong at 58.3%, ahead of estimates.
The company opened three net new stores in the quarter, bringing its global footprint to 770 locations. Net income totalled US$314m, slightly down from US$321m a year earlier.
Tariffs and consumer caution weigh on outlook
The earnings downgrade comes amid broader uncertainty in the US retail sector. Lululemon cited a “dynamic macroenvironment” shaped by cautious consumer spending and the impact of President Donald Trump’s renewed tariff regime.
Speaking on the company’s earnings call, McDonald said:
“In the US, consumers remain cautious right now, and they are being very intentional about their buying decisions.”
Trump’s April 2 tariff announcement has already forced several retailers—including Macy’s, American Eagle, and Abercrombie & Fitch—to revise or withdraw their guidance. Lululemon is particularly exposed to the tariff shifts: in 2024, 40% of its products were manufactured in Vietnam, with significant sourcing also from Cambodia, Sri Lanka, Indonesia, and Bangladesh.
Though the company’s revenue forecast for the full year—US$11.15bn to US$11.30bn—remains unchanged, its profit margin appears under pressure. Inventories also rose 23% year-on-year, a potential warning sign if demand continues to weaken.
Analysts see pricing power, but sentiment turns
Despite the cut, some analysts believe Lululemon retains pricing strength. Morningstar’s David Swartz noted the brand’s premium positioning, saying:
“I think it can actually raise prices to offset higher tariffs better than most of their competitors.”
Still, the size of Thursday’s after-hours selloff—erasing more than US$20bn from Lululemon’s market capitalisation—suggests deepening investor concerns. Year-to-date, LULU shares are now down over 30%, with much of the drop concentrated in the past 24 hours.
