Lululemon’s Third Straight Miss: Blaming Tariffs, But the Real Problem Is Fading Brand Power

TradingKey - Athleisure brand Lululemon Athletica released its Q2 2025 earnings after the market close on Thursday. Despite beating earnings-per-share expectations, disappointing results once again shattered investor confidence — including tariff risks, weakening U.S. consumer appeal, and competition from affordable alternatives undermining the brand’s premium positioning.

On September 4, after U.S. markets closed, Lululemon reported:

• Revenue: $2.53 billion, up 7% YoY, slightly below the $2.54 billion consensus
• EPS: $3.10, above the $2.88 forecast

For the full year, Lululemon updated its FY2025 outlook:

• Revenue: $10.85–11.0 billion, with the high end below the $11.18 billion consensus
• EPS: $12.77–12.97, significantly below the $14.45 consensus

Following the report, Lululemon’s stock plunged nearly 17% in after-hours trading — a pattern seen in its previous two earnings reports, despite all three quarters delivering EPS above expectations. After its Q4 2024 release, the stock fell 14.19%; after Q1 2025, it dropped 19.80%.

Lululemon Stock After Q2 Earnings, Source: Yahoo

Blaming Tariffs Again

For the third consecutive quarter, Lululemon executives pointed to U.S. tariff policy as a major headwind. According to its 2024 annual report, about 40% of Lululemon’s products are manufactured in Vietnam, 17% in Cambodia, 11% in Sri Lanka, 11% in Indonesia, and 7% in Bangladesh — exposing the company directly to Trump tariff risks.

CEO Calvin McDonald said the company is navigating industry-wide changes related to tariffs and rising operating costs, with higher tariffs and the elimination of the de minimis exemption being key factors behind its lowered guidance.

Lululemon estimates:

• $240 million reduction in gross profit in 2025
• $240 million decline in operating profit in 2025
• $320 million operating profit loss in 2026

CFO Meghan Frank noted that the elimination of the U.S. de minimis duty-free threshold will have a significant impact, accounting for 1.7 percentage points of the total 2.2-percentage-point decline in tariff-related profit margin.

Intensifying Competition, Declining Brand Power

In Q2, Lululemon’s same-store sales rose just 1%, far below the 2.2% to 3.7% consensus. The weakness stemmed from a 4% decline in North America — its core market, which accounts for three-quarters of revenue — while China surged 17% and other international markets grew 12%.

CEO McDonald acknowledged that while international regions showed positive momentum, the company was disappointed with U.S. performance and product execution.

He admitted that product lifecycles have become too long, making Lululemon’s casual and social wear outdated and out of touch with consumers. The brand has become overly reliant on core franchises like the scuba sweatshirts, which are now showing signs of weakening demand.

“We have become too predictable within our casual offerings and missed opportunities to create new trends,” McDonald said, identifying those issues as the root causes of the company’s product challenges in the U.S.

Additionally, rising competition from affordable challenger brands like Alo Yoga and Vuori is drawing consumers away from Lululemon’s premium-priced products. McDonald said no single competitor is having a meaningful impact, but the market is now crowded with players.

GlobalData commented:

“The blunt truth is that Lululemon is no longer the challenger.”

TradingKey analyst Petar Petrov said the company’s explanation — blaming tariffs and the de minimis rule — may hold some truth, but it fails to mask poor brand management by leadership.

Even more concerning, Lululemon — known for its tight-fitting leggings — is facing a shift in fashion trends. As The Economist noted, Vogue editors are no longer wearing Lululemon tights to coffee shops or jogs. Fashion editors are declaring that fitted clothes are out and baggy ones are in.

A 2024 survey of 10,000 consumers across 13 countries found that 48% are wearing denim more frequently than before.

After carefully assessing the drivers behind its weak performance, Lululemon said it will take necessary actions to strengthen its product portfolio and accelerate its business.