Can Lululemon overcome US consumer weakness and rising tariff costs?

Lululemon's growth engine slows amid US weakness and tariff pressures

The premium athletic apparel brand faces margin compression and inventory challenges as US dollar consumer spending softens and new tariffs weigh on profitability.

Premium athleisure brand hits unexpected turbulence

Lululemon Athletica, the high-end athletic apparel maker long hailed for its consistent double-digit growth and cult-like brand following, has hit a rough patch. The company's first quarter (Q1) earnings for fiscal 2025 showed slowing momentum, especially in its core North American market, spooking investors and sending shares tumbling more than 20% following a reduced full-year outlook.

This represents a significant shift for a company that has been a darling of the retail sector, consistently delivering strong growth and premium margins through its focus on high-quality yoga and athletic wear targeted at affluent consumers.

The dramatic market reaction reflects investor concerns that Lululemon may be facing more than just temporary headwinds, with structural challenges potentially undermining its premium positioning and growth trajectory.

The company's stumble comes at a time when many retailers are grappling with changing consumer behaviour, US tariffs, and an increasingly competitive athleisure market that has attracted numerous new entrants.

Tariff pressures and consumer behaviour challenges

CEO Calvin McDonald acknowledged the drag from US consumers, describing their purchasing behaviour as "very intentional." The company also faces fresh headwinds from US tariffs - 30% on Chinese imports and 10% on other Asian goods - expected to eat into profit margins. Lululemon plans to offset the impact through supplier renegotiations, increased supply chain efficiency, and modest price hikes, but the near-term pressure is already apparent.

Reduced guidance reflects cautious outlook

For the second quarter (Q2), Lululemon expects revenues of $2.535–$2.560 billion, which would mark a 7–8% rise. However, the company trimmed its full-year forecast, now guiding for sales between $11.15–11.30 billion (5–7% growth) and EPS of $14.58–14.78, down from the earlier $14.95–15.15 projection. The muted outlook spurred a swift reaction on Wall Street. Several analysts lowered their price targets, though few issued outright downgrades.

Analyst sentiment remains mixed but supportive

According to LSEG Data & Analytics, eight analysts have a 'strong buy' recommendation for Lululemon, nine a 'buy', 15 a 'hold', two a 'sell' and one a 'strong sell' (as of 19 June 2025).

Lululemon has a TipRanks Smart Score of '7 Neutral' and is rated as a 'buy' with 15 'buy', 12 'hold' and two 'sell' recommendations.

Lululemon LSEG data & analytics chart

This analyst distribution suggests that while confidence has been shaken, most professionals still see value in the company's long-term prospects despite current challenges. The recent increase of 'hold' ratings reflects a wait-and-see approach by many analysts.

The forward P/E ratio of approximately 18.1 and a revised EPS of about $14.7 suggest the market is recalibrating expectations after years of robust growth, potentially creating opportunities for investors willing to accept near-term volatility. The mixed sentiment reflects the tension between Lululenom's strong brand equity and execution track record versus the very real challenges it faces in the current operating environment.

IG client sentiment chart

Technical analysis suggests further downside risk

The Lululemon share price, down 40% year-to-date, is at a critical juncture as it rapidly approaches its August 2024 low at $226.01. Were it to give way, a slip towards the $200 region may well be on the cards, with perhaps even the October 2018 peak at $164.79 representing a possible downside target.

The April 2025 low at $234.84 is expected to act as resistance if revisited. As long as it isn't overcome, immediate downside pressure is likely to persist.

Lululemon monthly chart

Strategic initiatives and balance sheet strength

Still, there are bright spots. Lululemon added three new stores in Q1, bringing its global total to 770, and continues to roll out new product lines like its fashion-forward "Glow Up" collection. Strategic marketing, including events in Beijing and Las Vegas, reinforces brand vitality even as demand cools domestically.

The balance sheet remains strong, with $1.3 billion in cash and approximately $393 million in unused credit capacity. The company also repurchased $430 million worth of shares during the quarter, demonstrating management's confidence in long-term prospects.

International expansion continues to show promise, with strong growth rates suggesting that Lululemon's brand appeal translates well across different markets and consumer segments outside North America.

The company's ability to maintain innovation in product development and marketing execution provides hope that current challenges may prove temporary rather than indicative of fundamental brand weakness.