Lululemon Stock Plunges 17% After Q2 Earnings; Find Out Why

Even the strongest brands can falter, and this quarter Lululemon gave Wall Street a reality check. The company’s much-anticipated Q2 FY2025 results exposed cracks in its U.S. business, softening consumer demand, and the weight of rising tariffs. What initially looked like another solid quarter quickly turned into a disappointment once investors saw the lowered full-year outlook and sluggish sales momentum. Lululemon’s stock tanked around 17% in after-hours trading as per Google Finance sparking urgent questions about whether the athleisure leader’s growth story is losing steam.

Let’s break down with this blog what exactly went wrong for Lululemon, why the stock fell so sharply, and what investors should keep in mind going forward.

Key Financials Snapshot of Lululemon After Q2 Earnings

Source: Lululemon Q2 Earnings Report

In simple terms, Lululemon is still growing revenue and profits, but not as strongly as before. Margins slipped due to tariffs and markdowns, which means the company is earning less on each dollar of sales. Inventory also piled up, which signals products are not moving as fast as planned, never a good sign for a retailer.

What’s Troubling Lululemon? The Bads and a Good

Revenue & Guidance Misses

• Revenue: Revenue grew 7% to ~$2.53B, but that was still a touch below analyst expectations of around $2.54B.
• Full Year Guidance Miss:

Source: Lululemon Q1, Q2 Earnings Report

U.S. Business Weakness

• Same-store sales in the Americas dropped ~4%, a rare misstep that signals underwhelming demand and rising competitive pressures.
• Management admitted the U.S. business underperformed, with certain categories like casual and lounge wear losing their edge. CEO Calvin McDonald called product life cycles “too predictable”.

Cost & Tariff Headwinds

• Tariffs and the removal of the "de minimis" exemption are estimated to hit gross profit by ~$240 million, impacting margins significantly.
• Margin guidance also reflects further expected compression, with some estimates projecting ~300 bps of drag.

The “de minimis” exemption is a trade rule that lets companies import small-value shipments (under $800 in the U.S.) without paying tariffs or duties. In simple terms, it was like a free pass for low-cost imports and now that it’s removed, brands like Lululemon have to pay extra taxes on many of their products, thereby squeezing profits.

International Shield

• On a brighter note, international comparable sales grew by 17-22%, led by China (~17%) and other global markets. That said, they weren’t enough to offset the U.S. slide.

Why the Heavy Sell‑Off in the Lulu Stock?

• Disappointment Despite the Beat: Beating EPS wasn’t enough when revenue slightly missed and full-year guidance came down sharply.
• U.S. Stumble in a Core Market: A decline in the domestic business, especially in categories that once defined the brand, caused concern over brand fatigue.
• Tariff Shock: The sudden impact of the de minimis removal and tariffs was steeper than expected, hurting cost structures.
• Too Predictable, Too Slow: Management admitted product innovation lagged. Casual wear lines like Softstreme lacked freshness, prompting efforts to expand new styles from 23% to 35% by spring.

What’s Lululemon’s Management Saying and Doing Next?

• Product Refresh: CEO McDonald is committed to advancing new styles quickly and raising their share of the mix from 23% to 35%.
• Supply Chain Agility: Efforts underway to fast-track design, dual-source fabrics, and reduce lead times.
• Pricing Action: The CFO noted modest price increases on some lines to manage tariff pressures.
• Cost Discipline & Store Expansion: Capital expenditures are being managed more cautiously, while 14 new stores opened in Q2 and international expansion remains a focus.
• Digital & AI: Investments in AI and digital merchandising aim to revitalize product relevance and efficiency.

Final Take on Lululemon: Risks & Hope in Balance

Lululemon’s Q2 FY2025 shines a spotlight on the delicate balance between brand strength and vulnerability. On one hand, international momentum, a loyal membership base (~30M), and innovation pipelines remain strong pillars. On the other, the U.S. misstep, tariff drag, and product predictability reveal cracks in a brand not immune to macro shifts.

Investors will watch closely to see if new styling, faster supply cycles, and pricing strategies can re-energize U.S. growth and whether international performance can stabilize margins until domestic relief arrives.

Disclaimer:

The content is meant for education and general information purposes only. Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Past performance is not indicative of future returns. The securities quoted are exemplary and are not a recommendation. This in no way is to be construed as financial advice or a recommendation to invest in any specific stock or financial instrument.The figures mentioned in this article are indicative and for general informational purposes only. Readers are encouraged to verify the exact numbers and financial data from official sources such as company filings, earnings reports, and financial news platforms. The Company strongly encourages its users/viewers to conduct their own research, and consult with a registered financial advisor before making any investment decisions. All disputes in relation to the content would not have access to an exchange investor redressal forum or arbitration mechanism. Registered office address: Office No. 507, 5th Floor, Pragya II, Block 15-C1, Zone-1, Road No. 11, Processing Area, GIFT SEZ, GIFT City, Gandhinagar – 382355. IFSCA Broker-Dealer Registration No. IFSC/BD/2023-24/0016, IFSCA DP Reg No: IFSC/DP/2023-24/010