Thursday's extended trading saw a sharp decline in shares following the company's considerably worse-than-expected full-year projection.
The business slightly missed revenue projections but exceeded second-quarter earnings estimates. It stated that it anticipated a $240 million reduction in full-year profits due to tariffs.
According to Lululemon, its entire fiscal year earnings are expected to be between $12.77 and $12.97 per share, which is significantly less than the $14.45 per share that Wall Street has predicted. Additionally, compared to Wall Street's projection of $11.18 billion, it expects full-year sales of $10.85 billion to $11 billion.
During a call with investors, CEO Calvin McDonald stated, "We are facing yet another shift within the industry today related to tariffs and the cost of doing business." "A major factor in our guidance reduction for the year has been the removal of the de minimis provisions and the increased rates."
According to an LSEG survey of analysts, the company's second-quarter performance was as follows in relation to what Wall Street had anticipated:
Profits per share: $3.10 as opposed to the anticipated $2.88
Revenue: $2.53 billion as opposed to the anticipated $2.54 billion
Following Thursday's bell, the company's stock fell more than 12%. This year, the stock has dropped more than 45%.
Compared to $392.92 million, or $3.15 per share, during the same period last year, the company's second-quarter net income was $370.9 million, or $3.10 per share. The operating margin dropped 210 basis points to 20.7%, while the gross margin dropped 1.1 percentage points to 58.5%.
During the call, Chief Financial Officer Meghan Frank stated that the elimination of the de minimis exemption, which exempted certain smaller shipments from tariffs, will have a substantial impact on the business, accounting for about 1.7 percentage points of the anticipated 2.2 percentage point drop in profit for the year due to tariffs.
In the Americas, same-store sales decreased by 4%. Comparable sales rose by just 1% overall, while Wall Street predicted a 2.2% increase. During the second quarter, Lululemon reported adding 14 net new stores, increasing its total to 784 locations.
According to McDonald's statement on Thursday, "I think it's time to reset many of our practices related to how we develop and create the range of products that will fuel the next phase of our growth." "We've seen that everything else can follow once we get our product right."
In contrast to Wall Street's projections of $2.57 billion, Lululemon forecasts third-quarter revenue to be between $2.47 billion and $2.50 billion. In contrast to an expectation of $2.93 per share, the business stated that it anticipates earnings per share in the upcoming quarter to be between $2.18 and $2.23 per share.
During the Thursday call, McDonald expressed his opinion that the company had allowed its product lifecycles to "run too long," especially in the social and lounge categories.
He identified these problems as the "root causes" of the company's product difficulties in the United States, saying, "We have become too predictable within our casual offerings and missed opportunities to create new trends."
McDonald continued, "Our lounge and social product offerings have grown stale and have not been connecting with guests."
McDonald stated that in order to recapture its momentum in the United States, the company intends to enhance its fast-track design capabilities and raise the percentage of new styles in its overall variety from 23% to 35% next spring. He stated that Lululemon will not make any decisions in the near future that "could hurt or damage" the brand over time.
"We know our brand can and will perform better than these results, and we are not satisfied with the results for the quarter," McDonald stated.
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