Lululemon Stock (LULU) Under Pressure Into Earnings: Tariff and Demand Concerns Weigh

Lululemon Athletica's stock (NASDAQ: LULU) has come under plenty of bearish pressure this year, with the YTD decline of 46.68% only accelerating a trend which had begun at the end of 2023. Since the beginning of 2024, LULU has now shed a little over 60%, with bulls hoping today's earnings may help stem the bleeding.

Analysts are looking for an EPS of $2.85 for the quarter, down from the $3.15 delivered this time last year. Revenue is expected to have trended upwards, with the $2.54billion consensus a 7.13% sales growth rate. The expectation currently is for FY26 revenue to grow 5.77%, with a mild acceleration to 6.45% in FY27.

Looking at recent reports for clues, Lululemon's first-quarter fiscal 2025 results, announced on June 5th, initially painted a rosy picture. The company reported EPS of $2.54 and revenue of $2.21 billion, both exceeding Wall Street's expectations.

A 6% increase in comparable sales, fueled by a remarkable 33% surge in mainland China, provided a seemingly solid foundation. As a result, Lululemon maintained its full-year revenue forecast of $10.70 billion to $10.80 billion and even raised its EPS guidance to a range of $14.27 to $14.47.

However, this optimism was quickly tempered by a stark warning. Lululemon cautioned that increased tariffs and inconsistent demand in key markets, particularly North America and China, would negatively impact profits throughout 2025.

The company outlined plans to implement modest price hikes and offer more significant discounts to mitigate these challenges. This announcement triggered a wave of concern, culminating in a 20% drop in Lululemon's shares in trading following the announcement.

The tariff issue is a particularly sensitive point. Proposed tariffs targeting key sourcing regions such as Vietnam, Cambodia, and Sri Lanka are expected to squeeze profit margins. CEO Calvin McDonald acknowledged that cautious U.S. consumer spending is also contributing to the company's woes. This combination of external pressures and internal strategic adjustments has created a volatile environment for Lululemon.

Analysts have responded with caution, revising their price targets downwards. Wells Fargo & Company lowered its price target for Lululemon to $225.00, while Barclays reduced its target to $209.00. Jefferies, taking a more bearish stance, maintained the lowest price target at $160, anticipating a significant decline in earnings.