Lululemon Athletica (LULU) shares plummeted 21.55% in pre-market trading on Friday, following the company's disappointing first-quarter earnings report and reduced annual profit forecast. The sharp decline comes as the athletic apparel retailer grapples with economic uncertainties and the impact of potential tariffs on its supply chain.
In its earnings release after Thursday's market close, Lululemon reported first-quarter revenue of $2.37 billion, slightly above analyst expectations of $2.36 billion. However, the company's earnings per share of $2.60, while meeting consensus estimates, failed to impress investors given the challenging outlook provided by management.
The primary catalyst for the stock's pre-market plunge was Lululemon's decision to slash its full-year earnings guidance. The company now expects annual earnings per share between $14.58 and $14.78, down from its previous forecast of $14.95 to $15.15. This reduction was attributed to the anticipated impact of tariffs and slightly higher expected markdowns.
CEO Calvin McDonald cited a "dynamic macroenvironment" in the earnings call, noting that U.S. consumers remain cautious and intentional about their purchasing decisions. The company reported lower store traffic in the Americas, which executives linked to economic uncertainty, inflationary pressures, and changes in discretionary spending patterns.
Adding to investor concerns, Lululemon provided weaker-than-expected guidance for the second quarter. The company anticipates Q2 earnings per share of $2.85-$2.90, falling well short of analyst projections of $3.29 per share. This outlook suggests a significant deceleration in growth compared to recent quarters.
To mitigate the impact of potential tariffs, Lululemon plans to implement strategic price increases on a small portion of its assortment and pursue supply chain efficiencies. However, these efforts are expected to have a more pronounced effect in the second half of the year, leaving near-term profitability under pressure.
The disappointing forecast comes as Lululemon faces a challenging retail environment and increased competition in the athleisure market. As the company navigates these headwinds, investors will be closely watching for signs of how effectively it can maintain its market position and drive growth in an increasingly competitive landscape.