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Lululemon Faces Tariff Squeeze as Product Refresh Races Against Falling Margins

MarketDash Editorial Team
4 hours ago
The athleisure giant is caught between slowing U.S. demand and tariff pressures that are hammering margins, with its product refresh strategy unlikely to pay off until 2026.

Lululemon Athletica Inc. (LULU) heads into Thursday's third-quarter earnings report facing a tough reality: slowing sales growth, shrinking margins, and weaker U.S. demand. The question investors are asking is whether the company's big push to refresh its product lineup can turn things around, or if they'll be waiting until 2026 to see real results.

Dana Telsey from Telsey Advisory Group maintains a Market Perform rating on Lululemon with a $200 price target, laying out what to expect when results drop after the close on Thursday, December 11. The focus is squarely on management's outlook and how they're talking about their product assortment.

Telsey is modeling third-quarter earnings of $2.22 per share, just a penny above the Street consensus of $2.21, but notably down from $2.87 in the same quarter last year. That figure sits comfortably within the company's guidance range of $2.18 to $2.23, so no surprises there.

On the revenue side, Telsey expects $2.496 billion, representing 4.2% year-over-year growth, slightly ahead of the consensus estimate of $2.477 billion and within the company's guidance of $2.47 billion to $2.50 billion. Comparable sales are projected to rise just 1.0%, a slowdown from last year's 3.0% gain.

The analyst is watching U.S. traffic patterns and demand trends closely, particularly in core categories like lounge and social wear, looking for any signs that the product refresh is gaining traction.

Margins Take a Heavy Hit

Here's where things get painful. Telsey forecasts gross margin of 54.4%, representing a 410 basis point decline year-over-year, right in line with what the company has been telegraphing. Add in 150 basis points of selling, general and administrative expense deleverage to 39.5% of sales, and you're looking at an operating margin of just 14.9%, down a hefty 560 basis points from last year.

Tariffs Weigh on Full-Year Outlook

For the full fiscal year 2025, Telsey projects sales of approximately $10.96 billion with earnings per share of $12.92, matching management's reduced earnings guidance.

The culprit behind the weaker profitability? Tariffs, including the elimination of the de minimis exemption that allowed lower-value imports to enter duty-free. Telsey expects Lululemon to pursue mitigation strategies including pricing adjustments, vendor negotiations, and cost savings, but those efforts will be weighted toward the second half of the year. Even with those moves, the tariff impact likely won't be fully offset heading into fiscal 2026.

Product Reset Takes Center Stage

On the strategic front, Telsey highlights leadership consolidation and a critical merchandise reset happening in the U.S. market, where product life cycles have simply run too long without enough fresh options.

Lululemon is targeting an increase in new styles to 35% of its assortment by spring, up from just 23% currently. The company is also working on faster speed-to-market initiatives, though those efforts are expected to deliver more meaningful benefits in 2026 rather than immediately. Telsey's $200 price target is based on a 14.0x multiple applied to a two-year forward earnings estimate of $14.30 per share.

LULU Price Action: Lululemon Athletica shares were down 4.27% at $181.90 at the time of publication on Monday.

Back to News

Lululemon Faces Tariff Squeeze as Product Refresh Races Against Falling Margins

MarketDash Editorial Team
4 hours ago
The athleisure giant is caught between slowing U.S. demand and tariff pressures that are hammering margins, with its product refresh strategy unlikely to pay off until 2026.

Lululemon Athletica Inc. (LULU) heads into Thursday's third-quarter earnings report facing a tough reality: slowing sales growth, shrinking margins, and weaker U.S. demand. The question investors are asking is whether the company's big push to refresh its product lineup can turn things around, or if they'll be waiting until 2026 to see real results.

Dana Telsey from Telsey Advisory Group maintains a Market Perform rating on Lululemon with a $200 price target, laying out what to expect when results drop after the close on Thursday, December 11. The focus is squarely on management's outlook and how they're talking about their product assortment.

Telsey is modeling third-quarter earnings of $2.22 per share, just a penny above the Street consensus of $2.21, but notably down from $2.87 in the same quarter last year. That figure sits comfortably within the company's guidance range of $2.18 to $2.23, so no surprises there.

On the revenue side, Telsey expects $2.496 billion, representing 4.2% year-over-year growth, slightly ahead of the consensus estimate of $2.477 billion and within the company's guidance of $2.47 billion to $2.50 billion. Comparable sales are projected to rise just 1.0%, a slowdown from last year's 3.0% gain.

The analyst is watching U.S. traffic patterns and demand trends closely, particularly in core categories like lounge and social wear, looking for any signs that the product refresh is gaining traction.

Margins Take a Heavy Hit

Here's where things get painful. Telsey forecasts gross margin of 54.4%, representing a 410 basis point decline year-over-year, right in line with what the company has been telegraphing. Add in 150 basis points of selling, general and administrative expense deleverage to 39.5% of sales, and you're looking at an operating margin of just 14.9%, down a hefty 560 basis points from last year.

Tariffs Weigh on Full-Year Outlook

For the full fiscal year 2025, Telsey projects sales of approximately $10.96 billion with earnings per share of $12.92, matching management's reduced earnings guidance.

The culprit behind the weaker profitability? Tariffs, including the elimination of the de minimis exemption that allowed lower-value imports to enter duty-free. Telsey expects Lululemon to pursue mitigation strategies including pricing adjustments, vendor negotiations, and cost savings, but those efforts will be weighted toward the second half of the year. Even with those moves, the tariff impact likely won't be fully offset heading into fiscal 2026.

Product Reset Takes Center Stage

On the strategic front, Telsey highlights leadership consolidation and a critical merchandise reset happening in the U.S. market, where product life cycles have simply run too long without enough fresh options.

Lululemon is targeting an increase in new styles to 35% of its assortment by spring, up from just 23% currently. The company is also working on faster speed-to-market initiatives, though those efforts are expected to deliver more meaningful benefits in 2026 rather than immediately. Telsey's $200 price target is based on a 14.0x multiple applied to a two-year forward earnings estimate of $14.30 per share.

LULU Price Action: Lululemon Athletica shares were down 4.27% at $181.90 at the time of publication on Monday.