Lululemon slashed its 2025 outlook, and the reason isn’t a glut of leggings or a sudden shift in fashion. It’s tariffs—plus the end of a shipping loophole that had quietly kept online orders cheaper. The company now expects full-year revenue to grow just 2% to 4%, with earnings per share cut to $12.77–$12.97 from a prior $14.58–$14.78. That’s a sharp reset for a brand that, until recently, seemed immune to retail slowdowns.
Two forces hit at once. First, tariff rates on key sourcing countries rose above the earlier 10% baseline; imports from Vietnam, a major production center, now face a 20% rate after a summer trade deal. Second, the U.S. removed the de minimis exception, which had allowed small packages to enter without duties. Lululemon fulfills much of its U.S. e-commerce from Canada, so many orders that used to slide in duty-free now carry tariffs. When those two changes collide, every parcel gets more expensive.
The math is material and immediate. Management estimates tariffs and the de minimis change will trim about $240 million from gross profit this year. For context, Lululemon generated roughly $6.3 billion in gross profit in 2024, so the hit is around 4% of last year’s gross profit base. Looking out to 2026, the impact could rise to $320 million if tariff rates on Vietnam and China escalate as projected.
Guidance reflects the pressure point by point. The company now sees full-year revenue between $10.85 billion and $11.0 billion, below earlier expectations of $11.18 billion. Third-quarter EPS is now guided to $2.18–$2.23, down about 25% from a previous $2.90. With more than 60% of total sales coming from the United States, higher duties and shipping costs land squarely on Lululemon’s largest market.
Tariffs upend the playbook
Tariffs rarely act alone; they ripple through supply chains, pricing, inventory, and customer behavior. The Vietnam rate jumping to 20% is a clear cost headwind, but the de minimis repeal is what makes this cycle feel different. The policy had allowed retailers to fulfill U.S. orders from nearby hubs—often Canada—without paying duties on each parcel. That kept cross-border e-commerce lean and fast. Removing the exception adds a duty line item on top of freight and handling for each order, turning a quiet advantage into a loud expense.
In apparel, where margins depend on unit economics and tight operational timing, the shift is severe. A small tariff bump on a core fabric can flow through every style, color, and size. A parcel duty that used to be zero now stacks on each shipment, including exchanges and returns. Multiply that by millions of orders, and the difference between a 28% and a 30% gross margin can decide how much the brand can spend on marketing, stores, and product development.
There’s also a timing problem. Retailers plan assortments, capacity, and routing months in advance. When trade terms change mid-year, it’s hard to unwind purchase orders, rebalance inventory between regions, or rebook fabric allocations. Lululemon can adjust, but not overnight. Expect the operational fixes to roll out in stages, with near-term costs showing up before savings do.
The pressure shows up in guidance in a few key ways: revenue growth slows because price increases can’t cover all the costs without denting demand, gross margin contracts as duty and fulfillment expenses rise, and EPS takes the compound hit. The third-quarter EPS cut of roughly one-quarter underscores the near-term bite from both tariffs and a softer consumer backdrop.
Meanwhile, demand signals have cooled off from the brand’s peak heat. Management flagged broader consumer weakness, and the category has seen heavier promotions across peers. In premium athleisure, shoppers still show up—but they pause more, wait for sales, and trade down on basics. That puts a ceiling on how far price increases can go before volumes crack.
Here are the headline numbers at a glance:
- 2025 revenue growth: 2%–4% (previously 5%–7%)
- Full-year revenue: $10.85B–$11.0B (vs. $11.18B prior)
- 2025 EPS: $12.77–$12.97 (vs. $14.58–$14.78 prior)
- Q3 2025 EPS: $2.18–$2.23 (about 25% below $2.90 prior)
- Estimated gross profit hit in 2025: ~$240M; potential ~$320M by 2026
- U.S. market exposure: 60%+ of total revenue
Put another way, even if sales keep growing, the profit engine is under new strain. Athleisure products are light and high margin, which made international sourcing and cross-border fulfillment attractive. That model still works, but the carry cost has gone up.
Strategic options and the risks that come with them
Lululemon says it will push vendors for cost relief and consider selective price increases. Both levers are standard, and both have limits. Vendors already face higher input costs and tighter labor markets in major manufacturing hubs. Pushing too hard risks quality or lead-time slippage. On pricing, the brand has strong equity but isn’t immune to sticker shock. The sweet spot is narrow: raise prices enough to offset duties, but not so much that customers wait for markdowns or switch to cheaper alternatives.
Rewiring the supply chain is the heavier lift—and the more durable fix. A few paths stand out:
- Shift production to non-tariff or lower-tariff countries. Moving some volume from Vietnam or China to places like Indonesia, Cambodia, India, or Jordan can lower rates. That requires factory onboarding, fabric mill capacity, and compliance work, which takes quarters, not weeks.
- Nearshore or onshore select categories. Mexico or Central America can shorten lead times and reduce freight, and in some cases lower duty exposure. But technical fabrics and specialty trims may still come from Asia, limiting the benefit unless the whole chain moves.
- Re-route fulfillment to U.S. distribution centers. Bringing more inventory stateside can avoid parcel-level duties triggered by cross-border shipments. This option needs working capital for inventory positioning and more warehouse capacity.
- Use duty-drawback and foreign trade zones. Where applicable, retailers can reclaim some duties on returns or re-exports and store goods in bonded facilities to defer or reduce payments. These programs are complex and require rigorous tracking.
None of these are quick or free. Shifting origin demands qualification of new suppliers, fabric testing, and auditing. Nearshoring adds capacity where cut-and-sew talent is thinner. Duty regimes also change, so today’s safe harbor can look different in two years. That’s why most global brands build optionality: multiple factories per style, diversified countries, and the ability to flip routing with minimal friction.
On the commercial side, Lululemon can tune its assortment and channel mix to protect profitability. Higher-duty items could lean into premium positioning to support price; lower-duty or lower-cost basics can maintain entry points. The company can also push full-price channels and throttle promotions to protect margins, though that risks slower traffic if competitors discount more aggressively.
Marketing and store experience matter here. When price goes up, the product story has to carry more weight—fit, performance, longevity. Lululemon built its brand on those pillars. Keeping returns low, improving size accuracy, and tightening fabric quality all help the unit economics, especially when every parcel now carries a duty charge. Small operational wins add up: fewer exchanges mean fewer taxed shipments.
There’s a technology angle too. Better demand forecasting and allocation can cut split shipments, which reduces per-order costs. Automation in DCs can bring pick-and-pack costs down. Smarter checkout logic can nudge customers toward single-basket purchases or fast lanes that limit re-shipments. None of these erase tariffs, but they cushion the blow.
Investors will watch for signs of price elasticity. If a $118 legging becomes $124, do sell-through rates hold? If they do, the brand can claw back margin. If not, the company faces the classic retail squeeze: higher costs, slower units, and heavier promotions. The third-quarter EPS reset suggests leadership is bracing for a period where recovery is choppy rather than linear.
Industry context offers only partial comfort. Other activewear names face variants of the same problem—more tariffs, more promotions, and a consumer who is still spending but more selective. Lululemon’s heavy U.S. exposure magnifies the pain. At the same time, the brand still has levers many rivals don’t: a direct-to-consumer model with high gross margins, a loyal customer base, and a track record of scaling new categories. That gives it room to absorb hits while it retools operations.
We should also acknowledge the political backdrop. Trade policy is fluid, especially in an election cycle. The Vietnam rate that’s 20% today could climb—or get carved out. The de minimis repeal reshaped cross-border e-commerce overnight; future rules could target specific countries or categories, or create new thresholds. Retailers have to design supply chains that work across scenarios rather than betting on a single outcome.
What will tell us whether Lululemon can stabilize margins? A few markers stand out over the next two to three quarters:
- Gross margin trajectory: Does the year-over-year decline narrow as supply chain changes kick in?
- Pricing power: Are full-price sell-through rates steady after modest price increases?
- Fulfillment mix: Does the company shift more U.S. e-commerce orders to domestic DCs to limit parcel duties?
- Sourcing diversification: Are more styles moving to lower-tariff origins without quality issues or delays?
- Promotion intensity: Does discounting stay controlled during key selling periods, or does it creep up to defend volumes?
For now, the story is simple even if the fixes are not. Tariffs and the end of de minimis erased a quiet advantage in Lululemon’s cross-border playbook. The brand is responding with the usual levers—vendor negotiations, selective price changes, and operational tweaks—while it works on larger supply chain moves. The near-term result is a lower growth outlook and a meaningful hit to profitability. The medium-term test is whether the company can re-engineer enough of its sourcing and fulfillment to rebuild margin without dulling demand.