Lululemon shares plummet 56% amid guidance cuts and tariff issues
- Lululemon stock has dropped 56% year-to-date amidst declining product momentum and increased tariffs.
- The company exceeded earnings expectations but lowered its full-year revenue forecast significantly.
- The mixed financial results raise questions about the company's future prospects and market evaluation.
In July 2025, Lululemon Athletica Inc. experienced a significant decline in its stock price, falling 56% throughout the year while the S&P 500 rose by 10%. This decline reflects a combination of factors including reduced guidance, tariff challenges, and weakening product momentum. The company revised its full-year revenue forecast downward from $11.15-$11.3 billion to $10.85-$11 billion, indicating substantial challenges ahead. Additional pressures stem from the end of the U.S. de minimis exemption, resulting in increased import duties that could add roughly $240 million to operating costs by 2026. Despite reporting an earnings per share higher than expectations at $3.10, a slight revenue miss at $2.53 billion led to investor concern over future performance. The company's same-store sales in the U.S. dropped by 4% during the second quarter of FY 2025, underscoring the struggles in its core market. Investors are left weighing whether the market's reaction has been overly harsh or if the challenges to Lululemon's growth are indeed fundamental and long-lasting. Lululemon, valued at around $20 billion with a trailing free cash flow of $1.4 billion, has a cash flow yield close to 7%. Compared to competitors like Nike, its valuation appears attractive. However, management's ability to stimulate U.S. demand while navigating rising costs remains uncertain. The company's fundamentals, characterized by solid profit margins and a clean balance sheet, are viewed favorably. Nevertheless, strong fundamentals do not guarantee stock protection against fluctuating market sentiments. As the company faces ongoing struggles domestically and in meeting its revised guidance, the potential for investment remains mixed, prompting discussions about the right strategy for investors in this stock. Lululemon's recent stock performance and operational challenges encourage a cautious approach among potential investors, especially considering the volatility associated with individual stock investments.