Shares plunge as Lululemon warns on profits

(Sharecast News) - Shares in Lululemon Athletica slumped on Friday, after the athleisure retailer warned on profits for the second time this year. The New York-listed firm - known for its high-end, expensive yoga wear - blamed sluggish demand in the US and tariff costs. As well as being based in Canada, Lululemon relies heavily on Asian countries such as China and Vietnam for both manufacturing and raw materials.

Annual diluted earnings per share are now forecast to come in between $12.77 and $12.97, compared to previous guidance for between $14.58 and $14.78.

The firm said higher tariffs and the scrapping of the de minimis exception would likely knock around $240m off annual profits.

Lululemon fulfils the majority of its US ecommerce orders through Canada. Under de minimis rules, international shipments under $800 were previously exempt from duty, but Donald Trump scrapped the exemption as part of his wider package of tariffs, effective from 29 August.

Group revenue expectations were cut to between $10.85bn and $11bn.

As at noon BST, the stock had slumped 19% in pre-market trading.

The warning came alongside disappointing second-quarter numbers. Net revenues in the Americas increased by just 1% in the three months to 3 August, compared to international sales growth of 22%.

On a like-for-like basis, sales slumped 4% in the Americas.

The gross margin also decreased sharply, down 110 basis points at 58.5%.

Calvin McDonald, chief executive, said: "We are disappointed with our US business results and aspects of our product execution.

"We have closely assessed the drivers of our underperformance and are continuing to take the necessary actions to strengthen our merchandise mix and accelerate our business."

Russ Mould, investment director at AJ Bell, said: "For a business once at the cutting edge of athleisure, Lululemon's shares have been as fashionable as a supermarket-bought Christmas jumper of late.

"US sales were already patchy before Trump scrapped the de minimis rule. Discounting has contributed to weaker margins and inventory of unsold items is piling up, a disastrous situation for a retailer.

"Shoppers are less interested in its products, and investors are dumping the shares."