The stock’s sell-off reflects a reset in expectations, not a broken business.
Management revised its outlook lower, citing tariff costs and softer U.S. demand, while international growth remains healthy.
Before buying shares, investors may want to wait for U.S. comparable sales trends to stabilize.
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Shares of Lululemon Athletica (NASDAQ: LULU) plunged after the company’s quarterly update late last week. The sharp drop in the athleisure apparel company’s stock worsens what has already been a rough year for the stock. Shares fell hard following the release of second-quarter results and a guidance cut tied to tariff costs and softer U.S. demand.
The drawdown looks more like a sharp reset than a broken business. Still, avoiding the stock might make sense for now.
Lululemon’s revenue rose about 7% year over year to roughly $2.53 billion, or 6% in constant currencies. This compares to 8% year-over-year growth in constant currencies in Q1. Further, comparable sales in the company’s core Americas geographic segment fell 3% on a constant currency basis, worse than the 1% constant currency decline in Q1. Earnings per share (EPS) for Q2 landed at $3.10, down from $3.15 in the year-ago period.
Beneath the surface, performance was uneven by region: the Americas saw a modest comp decline, while international growth was solid, with comp growth of 15%, or 13% on a constant currency basis.
Management paired the quarterly update with a meaningfully lower full-year outlook. The company now expects revenue of $10.85 to $11.0 billion, down from $11.15 billion to $11.30 billion, and EPS of $12.77 to $12.97, down from $14.58 to $14.78 just one quarter earlier. Two forces are doing most of the damage. First, tariff changes and the removal of the de minimis exemption are pressuring gross profit. Second, U.S. demand is softer as the assortment has leaned too heavily on a few long-running wins.
The U.S. slowdown matters because the region remains Lululemon’s profit engine. Comparable sales in the Americas slipped, while international markets grew at a double-digit clip. A revenue mix leaning this way can still produce respectable consolidated results, but it could compress margins and make inventory and markdown discipline more important. The company’s ability to hold the line on pricing without over-promoting will be a key tell over the next two quarters.
At the same time, higher costs are a real near-term headwind. Management quantified a sizable gross profit impact from tariffs this year. Even if the team mitigates some of it through sourcing shifts and pricing, the friction shows up quickly in the gross margin calculations. That’s the backdrop for the guidance reset, and it explains why the stock reacted so sharply despite positive EPS in the quarter.
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