Lululemon Q2 sales driven mostly by global growth; expects $240 million tariff hit
Lululemon Athletica Inc. reported mixed second-quarter results and slashed its full-year earnings outlook as it deals with higher tariffs, staleness in its merchandise mix and falling demand in its core U.S. market.
The outlook includes an expected $240 million hit from tariffs and the recent end of the de minimis exemption.
“The increased rates and removal of the de minimis provisions have played a large part in our guidance reduction for the year,” Lululemon CEO Calvin McDonald said on the company's earnings call.
Lululemon is also facing challenges on the home front, where it sales continue to fall amid increased competition and cautious consumers who are reining in spending on clothing.
“I now believe we have let our product life cycles run too long within many of our core categories, particularly in lounge and social,” McDonald told analysts. “We have become too predictable within our casual offerings and missed opportunities to create new trends.”
McDonald said the company is increasing new style as a percentage of its overall selection, from 23% today to 35% next spring.
“We are also enhancing our capabilities to go faster within our go-to market process by working with our vendors,” he added.
Second Quarter
Lululemon reported net income of $370.9 million, or $3.10 per share, for the quarter ended Aug. 3, compared to $392.92 million, or $3.15 per share, in the year-ago period. Analysts had expected earnings per share of $2.88.
Net revenue increased 7% to $2.5 billion. Americas net revenue increased 1%, while international net revenue increased 22%.
Overall comparable sales inched up 1%. Comp sales in the Americas fell 4%
Gross margin decreased 1.1 percentage points to 58.5%, and operating margin decreased 210 basis points to 20.7%.
“While we continued to see positive momentum overall in our international regions in the second quarter, we are disappointed with our U.S. business results and aspects of our product execution," McDonald said in the earnings statement. "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 company added 14 net new stores during the quarter, ending with 784 locations.
"We are also navigating industry-wide challenges, including higher tariff rates," said CFO Meghan Frank. "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."
Lululemon expects full fiscal-year earnings of $12.77 to $12.97 per share, well below Street estimates, and down from its previous estimate of $14.58 to $14.78. It expects revenue of $10.85 billion to $11 billion, also below estimates, down from its previous forecast of $11.15 billion to $11.3 billion.
