Lululemon says U.S. tariffs taking a bite, but also some of its athleisure wear became 'too predictable'

Lululemon Athletica shares have plunged after it said it was slashing its annual profit forecast for the second quarter in a row, blaming weak U.S. business performance, as well as tariff costs.

Shares of the Vancouver-based yogawear and clothing retailer maker, which also cut its annual sales forecast, were down about 17 per cent ahead of Friday's NASDAQ opening.

"While we continued to see positive momentum overall in our international regions, we're not happy with the current results in the U.S. business," CEO Calvin McDonald said Thursday on a post-earnings call.

The company expects an impact of about $240 million US on its 2025 gross profit from higher tariffs and the removal of the de minimis exemption. It sees a hit of around $320 million on its operating margin in 2026.

WATCH l Canadian businesses braced for de minimis change:

The U.S. has announced it’s eliminating a longstanding trade policy – the de minimis exemption – which has left businesses dealing with yet another trade disruption to navigate.

De minimis is a U.S. customs exemption that allows duty-free entry and minimal paperwork for international shipments under $800. The exemption removal became effective on Aug. 29.

"We have let our product life cycles run too long within many of our core categories," McDonald said.

"We have become too predictable within our casual offerings," he added, citing the softstreme, dance studio and scuba styles.

Lululemon fulfils about two-thirds of its U.S. e-commerce orders and used the exemption through distribution centres in Canada, it said in the earnings call.

Lululemon is sticking to its plan to take strategic price hikes in the U.S. market to reduce the tariff impact, chief financial officer Meghan Frank said, even as it increases markdowns overall, to clear inventory.

The company relied on U.S. import tariff hotspots Vietnam and mainland China for 40 per cent of its manufacturing and 28 per cent of its fabrics, respectively, as of 2024.

The company now expects annual revenue between $10.85 billion and $11 billion, compared to its previous outlook of $11.15 billion to $11.30.

Annual profit per share is now expected between $12.77 and $12.97, compared with previous expectations of $14.58 to $14.78 apiece.

Revenue for the second quarter, ended Aug. 3, rose seven per cent to $2.53 billion, largely in line with analysts' expectations, while earnings per share of $3.10 beat estimates of $2.88, according to data compiled by LSEG.

The dour forecast comes as U.S. holiday spending is expected to see its steepest drop since the pandemic, according to a PwC survey.

"Once the trailblazer in athleisure, Lululemon has lost its innovation edge, now squeezed by luxury newcomers like Alo Yoga and private-label dupes with comparable fabric tech at lower prices," said Suzy Davidkhanian, analyst at eMarketer.

"Copycat culture highlights how far the moat has shrunk."

McDonald said he was confident the company could ride out the challenges facing many retailers, given in part due to its customer loyalty, after a yearslong period of "hypergrowth."

While revenue for its Americas segment declined one per cent, and was flat for Canada, international sales rose 15 per cent.

Since the same quarter last year, the company has opened 63 new stores around the world and plans to open 14 more this quarter.

Mexico and China have been of particular focus in the company's expansion plans.