Lululemon (LULU.US) plunges after hours! Plans to lower full-year profit guidance under tariff pressure, considering raising prices on some products.

Lululemon Athletica (LULU.US) announced its performance for the first quarter of the fiscal year 2025, as well as the company's downward revision of full-year profit guidance, which has raised concerns that intense competition and tariff policies may be undermining the company's ambitious growth plans. As a result, Lululemon's stock dropped by 23% in after-hours trading on Thursday. The financial report shows that Lululemon's Q1 net revenue increased by 7% year-on-year to $2.37 billion, slightly above analysts' average expectation of $2.36 billion. Comparable sales increased by 1%, falling short of analysts' average expectation of 2.8%. By region, net revenue in the Americas increased by 3% year-on-year, with comparable sales down by 2%; international market net revenue increased by 19%, with comparable sales up by 6%. Gross profit increased by 8% year-on-year to $1.383 billion; gross margin was 58.3%, higher than the previous year's 57.7%. Operating profit was $439 million, a 1% increase year-on-year; operating margin was 18.5%, a decrease of 110 basis points from the previous year. Net profit was $314 million, lower than the previous year's $321 million. Diluted earnings per share were $2.60, higher than analysts' average expectation of $2.58. Looking ahead, Lululemon expects second-quarter revenue to be between $2.54 billion and $2.56 billion, with analysts' average expectation at $2.56 billion; earnings per share are expected to be between $2.85 and $2.90, while analysts' average expectation is $3.29. For the full year 2025, the company forecasts revenue to be between $11.15 billion and $11.3 billion, with analysts' average expectation at $11.24 billion; earnings per share for the full year are expected to be between $14.58 and $14.78, down from the previous expectation of $14.95 to $15.15, with analysts' average expectation at $14.89. In the financial report, Lululemon pointed out that the tariffs imposed in April in the United States have increased the cost of doing business in the U.S., which could result in a "significant decline in profitability." Lululemon's CEO, Calvin McDonald, admitted in a call with analysts that he is not satisfied with the growth performance in the U.S. market, noting that American consumers are more cautious and selective in their purchasing decisions. He stated, "Consumers in the U.S. are still very cautious, and their buying behavior is very selective." It is worth noting that in its previous quarterly report released in March, Lululemon had warned that American consumers were tightening their wallets. Calvin McDonald stated that the company plans to leverage its strong financial position and competitive advantage to actively position itself while continuing to invest in current growth opportunities. However, it is undeniable that tariffs are complicating Calvin McDonald's goal of doubling sales from 2021 to 2026. In addition, the increasingly fierce competition in the clothing industry, ongoing promotional activities, and years of inflation are also hindering the company's growth. 2025 is expected to be the fifth consecutive year of slowing sales growth for the company. Lululemon's CFO, Meghan Frank, added during the call, "We plan, as usual, to strategically raise prices on our products item by item." This measure is aimed at mitigating the impact of tariffs. She added that these price adjustments will only cover certain products and will be moderate in scope, gradually implemented in the latter part of the current quarter and continuing into the third quarter. At the same time, Lululemon's management is trying to boost demand by entering new product categories and expanding into sports such as running, tennis, and golf. Lululemon is also facing changing fashion trends, with more and more consumers preferring loose styles rather than the brand's well-known tight yoga pants. The company stated that it is pleased with the early performance of new products, including high-waist pants and athletic shorts. However, Bloomberg Intelligence analyst Poonam Goyal stated that tariff pressure and weak foot traffic in stores have offset any positive feedback on the new products. He said, "It's comforting that this novelty is popular. But tariffs and consumer uncertainty are overshadowing it."