Lululemon Shares Are Crashing as Tariffs Become a Major Problem

Lululemon Athletica’s (NASDAQ:LULU) latest earnings report has sent shockwaves through the market, with shares plummeting 20% in premarket trading following a dramatically lowered outlook for the remainder of 2025.

The Canadian yogawear retailer, once a darling of the athleisure market, is now grappling with a perfect storm of challenges, including steep tariff costs, weakening U.S. demand, and increasing competition from emerging brands. The company’s revised forecasts paint a concerning picture for investors, with tariff impacts alone expected to cost the company $240 million this year, potentially rising to $320 million in 2026.

Tariff Issues Creating Major Financial Headwinds for LULU

The most immediate and quantifiable threat facing Lululemon stems from recent changes to U.S. trade policy, particularly the elimination of the "de minimis" exemption that previously allowed shipments under $800 to enter the country duty-free.

CFO Meghan Frank revealed that the removal of this exemption alone represents roughly 1.7 percentage points of the 2.2 percentage-point tariff-related decline in profit expected for the year. This policy change, combined with broader U.S. levies on Vietnam and China where much of Lululemon’s manufacturing takes place, is creating unprecedented cost pressures for the company.

CEO Calvin McDonald described the situation as "yet another shift today within the industry related to tariffs and the cost of doing business," emphasizing how the increased rates and removal of de minimis provisions have played a large part in the company’s guidance reduction. The tariff burden represents a significant structural challenge that goes beyond typical business cycle fluctuations, forcing the company to fundamentally reassess its supply chain and pricing strategies.

The geographic concentration of these tariff impacts is particularly problematic for Lululemon, given that its Americas segment represents its largest market yet saw comparable sales decline 1% in the second quarter. While international sales rose 15%, the company’s heavy reliance on the U.S. market means that tariff-driven margin compression in this region has an outsized impact on overall profitability.

LULU Shares Crash

Lululemon’s stock opened at $200.90 on Friday morning before declining sharply to $165.63 in premarket trading as of 9:16 AM EDT, representing a devastating 19.63% drop from Thursday’s close of $198.53. This latest decline compounds what has already been a brutal year for shareholders, with the stock down more than 46% year-to-date compared to the S&P 500’s 10.55% gain.

The company’s 52-week range of $185.95 to $423.32 illustrates the dramatic fall from grace, with shares now trading near their annual lows.

The market’s reaction appears justified given the magnitude of Lululemon’s guidance revision, with full-year earnings now expected between $12.77 to $12.97 per share, well below Wall Street estimates of $14.45. Revenue projections have similarly been slashed to $10.85-11 billion versus analyst expectations of $11.18 billion. Third-quarter guidance proved equally disappointing, with revenue expected between $2.47-2.50 billion compared to Wall Street estimates of $2.57 billion.

At least 10 brokerages moved quickly to trim their price targets following the earnings announcement, with Barclays maintaining an Equal-Weight rating while lowering its price target from $209 to $180. The analyst consensus average price target of $243.72 now appears increasingly disconnected from the current trading reality, suggesting further downward revisions may be forthcoming as analysts reassess the company’s prospects.

Existential Threat or Temporary Setback?

While Lululemon faces significant near-term challenges, calling the current situation an existential threat may be premature given the company’s strong fundamentals and market position. The company maintains impressive profitability metrics with a 16.38% profit margin, 42.42% return on equity, and strong cash generation of $1.04 billion in levered free cash flow.

Additionally, Lululemon’s forward price-to-earnings multiple of 13.82 appears attractive compared to competitor Nike’s 39.21, potentially offering value for patient investors.

However, several concerning trends suggest deeper structural issues beyond temporary tariff headwinds. CEO McDonald acknowledged that the company has allowed product lifecycles to "run too long," particularly in lounge and social categories, with casual offerings becoming "too predictable" and failing to create new trends.

Sales fatigue in popular items like Scuba and Dance Studio pants among the company’s typically loyal, high-value customer base represents a product innovation failure that could take considerable time to address.

The competitive landscape has also shifted dramatically, with emerging niche brands like Alo Yoga and Vuori gaining market share and forcing Lululemon to increasingly rely on international markets, particularly China, to offset sluggish domestic demand. This geographic shift introduces additional risks related to geopolitical tensions and currency fluctuations while potentially diluting the brand’s premium positioning in core markets.

Perhaps most troubling is the timeline for recovery, as McDonald’s plan to increase new styles from 23% to 35% of the overall assortment by next spring suggests that meaningful product improvements remain months away. Combined with the escalating tariff burden and uncertain consumer environment, Lululemon faces a challenging period where multiple headwinds may compound rather than offset each other, testing the resilience of what was once considered an unstoppable growth story.

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This article was written by Shane Neagle, editor in chief of The Tokenist.