Company trims annual outlook, citing US$240 million tariff impact and sluggish sales momentum
Shares of Lululemon Athletica dropped more than 13 percent in New York on Thursday after the company cut its annual revenue and profit outlook, citing weaker consumer demand and a US$240m tariff hit, according to BNN Bloomberg.
The stock is down 46 percent so far this year, erasing pandemic-era gains.
The Vancouver-based retailer now expects annual revenue between US$10.85bn and US$11bn, down from as much as US$11.3bn, and profit between US$12.77 and US$12.97 per share, compared with its prior guidance of US$14.58 to US$14.78 apiece, reported CNBC.
For the third quarter, revenue is projected between US$2.47bn and US$2.5bn, with earnings of US$2.18 to US$2.23 per share, both falling short of Wall Street expectations.
Second-quarter results showed revenue rose 7 percent to US$2.53bn, largely in line with forecasts, while earnings of US$3.10 per share exceeded estimates of US$2.88, as per LSEG data cited by CNBC.
Net income totalled US$370.9m compared with US$392.92m a year earlier.
Gross margin slipped 1.1 percentage points to 58.5 percent, and operating margin fell 210 basis points to 20.7 percent.
Comparable sales grew 1 percent, below the nearly 3 percent analysts had anticipated, with same-store sales in the Americas down 4 percent.
Chief Executive Officer Calvin McDonald said “the increased rates and removal of the de minimis provisions have played a large part in our guidance reduction for the year.”
The de minimis exemption, which allowed duty-free imports under US$800, ended on August 29.
Bloomberg reported that Lululemon relied heavily on this policy, with two-thirds of its US e-commerce orders shipped from Canada qualifying for the exemption.
Chief Financial Officer Meghan Frank noted that the exemption’s removal will account for 1.7 percentage points of the 2.2 percentage-point tariff-driven profit decline expected in 2024, reported CNBC.
Lululemon manufactured 40 percent of its products in Vietnam and sourced 28 percent of fabrics from mainland China last year, exposing it to significant import duties, according to BNN Bloomberg.
McDonald acknowledged that product cycles have “run too long,” particularly in lounge and social categories, which he described as “stale.”
He said the company will increase new styles from 23 percent to 35 percent of its range by next spring. “We have seen that when we get our product right, everything else can follow,” he added.
Bloomberg reported that Lululemon has been restructuring its operations, including cutting 150 corporate jobs in June, while trying to offset tariffs through vendor negotiations and modest price hikes.
The company is also repositioning its brand with a marketing push featuring athletes such as Lewis Hamilton, Frances Tiafoe, and Max Homa.
