How Tariffs and Declining Sales are Impacting lululemon

Companies around the world have endured a major period of disruption in light of US President Donald Trump's tariffs. 

And, following the end of the de minimis exemption, even more companies are feeling the financial hit, including yogawear brand lululemon. 

The business has lowered its projected revenue outlook after a significant sales slump, resulting in a sharp decline in shares.

An athleisure giant

lululemon opened its first retail space in 1998 within a yoga studio in Canada. Two years later, its first official store was opened in Vancouver.

Today, it has 784 stores across the globe, reaching millions of customers.

At the turn of the millennium, lululemon established itself as an alternative to Adidas and Nike. At times over the past decade, it reported operating margins of 15-25% – significantly ahead of athleisure rivals. 

It remains the third-biggest company in the global sportswear industry, but, following ill-fated attempts to reach new markets, is failing to meet sales expectations.

Quarterly results show major drop

lululemon's latest report details an expected net revenue in the range of US$2.47bn to US$2.5bn for the third quarter. 

For 2025, the company expects net revenue in the US$10.85bn to US$11bn range, down from a first quarter prediction of US$11.3bn.

lululemon has also lowered its earnings per share outlook from US$14.78 to between US$12.77 and US$12.97.

After the release of its earnings report, shares in lululemon fell more than 13% on the same day. In fact, since January, shares in lululemon have fallen more than 50%.

Despite international net revenue increasing by 22% in Q2, net revenue in the US increased by just 1%. 

Meghan Frank, Chief Financial Officer at lululemon, states: "In the second quarter, we exceeded expectations on EPS, but revenue fell short of our guidance, driven predominantly by our US business.

"We are also navigating industry-wide challenges, including higher tariff rates. In light of these dynamics, we are revising our full-year outlook.

"As we begin the back half of the year, our brand and balance sheet remain strong, and we will continue to exercise financial discipline and strategically invest in our growth potential."

The de minimus effect

While lululemon operates across 25 countries, 75% of its revenue comes from the Americas.

This made the business particularly vulnerable to President Trump's tariffs, as 40% of its products in 2024 were made in Vietnam and almost 30% of its fabrics were from mainland China. Both of these nations have been grappling with major tariff hikes.

The de minimus exemption meant small packages shipped direct to consumer from abroad wouldn't face duty tax. Many of lululemon's US packages fell into this bracket, with 66% of US e-commerce orders coming from Canada and falling under the US$800 limit.

However, with the exemption having come to an end, lululemon is braced for higher tariffs and a US$240m dent in its finances. 

Changing consumer demand

In its early years, lululemon was recognised for its yogawear, though it has since branched out into different forms of athleisure to appeal to younger generations, who now favour a baggier style of clothing. 

Calvin McDonald, CEO at lululemon: "We have closely assessed the drivers of our underperformance and are continuing to take the necessary actions to strengthen our merchandise mix and accelerate our business. We feel confident in the opportunity ahead and plans we have in place to drive long-term growth."

The move away from yogawear, however, means that its newer, casual lines are less recognisable as lululemon products, but are still priced at a relative premium. 

Calvin adds: "We have let our product life cycles run too long within many of our core categories."