Lululemon Athletica’s second-quarter earnings report, released on September 4, 2025, revealed a complex financial landscape for the popular athleisure company. While the brand showcased robust growth in international markets, persistent challenges in the U.S. and tariff-related pressures have significantly impacted its performance. The company also issued a downward revision of its annual revenue and profit forecasts, signaling a cautious outlook for the rest of the fiscal year.
International Growth Shines as U.S. Sales Stumble
Lululemon reported Q2 revenue of $2.53 billion, a 7% year-over-year increase, but narrowly missing Wall Street’s consensus estimate of $2.54 billion, according to MarketScreener. The disparity between U.S. and international performance was stark: while international sales surged by 22%, U.S. comparable sales grew by a mere 1%, with a 4% decline in the Americas.
CEO Calvin McDonald acknowledged the challenges, stating, “We are disappointed with our U.S. business results and aspects of our product execution.” He emphasized the company’s commitment to improving its merchandise mix and accelerating its growth trajectory in the coming quarters.
China emerged as a bright spot, with revenue climbing 25%, aligning with the company’s target of 25–30% growth for fiscal year 2026. This success underscores the potential of international markets to offset domestic weaknesses.
Tariffs and Inventory: Key Pressure Points
One of the most significant challenges for Lululemon has been the impact of tariffs on its gross margins. Tariff-related costs contributed to a 110-basis-point decline in gross margins, which now stand at 58.5%. The company cited a $240 million gross profit drag from tariffs, exacerbated by the removal of the ‘de minimis’ exemption and higher import duties into the U.S.
Additionally, inventory levels rose by 21% year-over-year to $1.7 billion, raising concerns about potential markdown risks in the second half of the year. As noted by 24/7 Wall St., the inventory build-up reflects both supply chain adjustments and weaker-than-expected U.S. demand. To mitigate these risks, Lululemon plans to implement selective markdowns and adjust its pricing strategy.
Revised Guidance: A Cautious Outlook
Lululemon slashed its annual revenue forecast to a range of $10.85 billion to $11 billion, down from the previous guidance of $11.20 billion. Similarly, the profit forecast was lowered to $12.77–$12.97 per share, compared to the earlier range of $14.61. This marked the first significant guidance cut in several years, reflecting the dual pressures of weak U.S. consumer demand and tariff impacts.
The revised guidance also points to a challenging holiday season ahead, with U.S. holiday spending expected to see its steepest decline since the pandemic, according to a PwC survey cited by Yahoo Finance. Gen Z consumers, in particular, are becoming more cautious with their spending, further amplifying the uncertainties.
Product Innovation: A Mixed Bag
Despite the financial challenges, Lululemon has seen some success with its new product launches. Items like the Align No Line leggings and Glow Up leggings have resonated well with consumers, selling out in several regions. However, the broader product portfolio has struggled to ignite strong demand, particularly in the U.S.
Management is focusing on expanding its successful product lines and introducing new offerings in the second half of the year. Additionally, the company added 14 new stores globally in Q2, bringing its total store count to 784, as part of its long-term growth strategy.
Lululemon’s Q2 earnings highlight the company’s ability to thrive internationally while grappling with domestic and tariff-related challenges. As the holiday season approaches, the brand’s strategic adjustments in pricing, inventory, and product innovation will be critical to navigating this turbulent period.