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Lululemon athletica shares plummeted nearly 20% on Friday following the company’s disappointing Q2 2026 earnings report and revised outlook. The Canadian athletic apparel retailer warned that new U.S. tariffs and the elimination of the de minimis duty exemption will cost the company approximately $240 million this year. The policy changes, implemented under President Trump’s administration, are expected to disrupt Lululemon’s U.S. e-commerce operations and overall profitability significantly.
Lululemon Expects Heavy Hit to Earnings Due to Tariffs
The removal of the de minimis rule, which previously allowed companies to ship online orders worth $800 or less into the U.S. without paying import duties, will have a “significant impact” on Lululemon’s earnings, according to CFO Meghan Frank. The company has slashed its sales forecast for the next three months to between $2.47 billion and $2.5 billion, below analyst expectations. This represents a substantial downgrade from previous guidance as the company grapples with both tariff pressures and weaker U.S. sales performance.
Lululemon is particularly vulnerable to these trade policies as the majority of its products are manufactured in Asian countries, including China and Vietnam. The company joins other sportswear brands like Adidas and Nike that have been forced to raise prices in response to Trump’s tariffs. Adidas has warned the tariffs will cost it €200 million, while Nike raised prices on trainers and clothing in the U.S. market in June.
CEO Calvin McDonald acknowledged that while the company has seen “positive momentum” in overseas markets, management is “disappointed” by U.S. performance. The firm is exploring ways to mitigate tariff impacts through supply chain adjustments and cost-cutting measures, though McDonald noted that meaningful changes will take time to implement.
Lululemon stock has struggled significantly this year, with year-to-date returns showing a 46.11% loss compared to the S&P 500’s 10.55% gain. Over the past five years, LULU has declined 42.98% while the broader market gained 89.73%, highlighting the company’s underperformance relative to benchmarks.
Despite the recent challenges, Lululemon maintains relatively strong financial metrics with a trailing P/E ratio of 14.02 and a forward P/E of 13.97. The company generated $10.9 billion in trailing twelve-month revenue with a healthy profit margin of 16.38%.
The company faces increasing competitive pressure from lower-priced rivals, including Vuori and Alo Yoga, while McDonald admitted that Lululemon’s product cycles had “run too long” and become “too predictable,” causing the brand to miss emerging trends. With a market capitalization of $24.7 billion, the athletic apparel retailer will need to navigate both external tariff pressures and internal operational challenges to restore investor confidence.
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