Q2 earnings beat but full-year guidance disappoints
Lululemon shares plummeted over 12% in after-hours trading Thursday after the company slashed its full-year guidance, citing significant tariff-related pressures. While second-quarter earnings per share came in at $3.10, surpassing analysts’ expectations of $2.88, revenue narrowly missed forecasts at $2.53 billion versus $2.54 billion expected.
The company now expects full-year earnings between $12.77 and $12.97 per share, well below the $14.45 consensus. Projected revenue for fiscal 2025 is also below expectations, at $10.85 to $11 billion compared to the anticipated $11.18 billion.
Tariffs take a $240 million toll
CEO Calvin McDonald attributed much of the downward revision to tariffs, particularly the elimination of the de minimis exemption for small shipments, which previously helped the company avoid certain duties. CFO Meghan Frank noted that the exemption change alone accounted for roughly 1.7 percentage points of the expected 2.2-point drop in profit margins due to tariffs.
Gross margin declined 1.1 points to 58.5%, while operating margin fell by 210 basis points to 20.7%. Net income for Q2 was $370.9 million, down from $392.92 million a year earlier.
Product strategy under review
McDonald acknowledged product challenges in the U.S. market, especially within the lounge and social categories, where offerings had become “stale” and “predictable.” Comparable sales in the Americas declined 4%, with global comparable sales rising just 1%, below the 2.2% expected.
To regain momentum, the company plans to increase the share of new styles in its collection from 23% to 35% by next spring and improve fast-track design processes. McDonald emphasized that the company would avoid short-term tactics that could damage long-term brand equity.
Q3 guidance falls short of Wall Street targets
Lululemon projected third-quarter revenue between $2.47 billion and $2.50 billion, missing the $2.57 billion estimate. Expected Q3 earnings per share range from $2.18 to $2.23, far below the $2.93 forecast.
Despite adding 14 net new stores in Q2, bringing the total to 784 locations, the company’s U.S. performance remains under pressure. McDonald insisted that a strategic reset was underway, saying, “We are not satisfied with the results for the quarter, and we know our brand can and will perform better than these results.”
