Lululemon’s Guidance Cut: Tariffs, De Minimis, and a Product Reset Collide
Lululemon’s shares slid after the company cut guidance for the second time this year, citing the newly enforced removal of the U.S. de minimis exception and higher tariff rates. In an interview, CEO Calvin McDonald detailed how policy changes at the end of August are pressuring costs and forcing a rethink of distribution, pricing, and product mix. This matters now because it blends macro policy (tariffs and customs thresholds) with consumer demand softness in U.S. apparel—an industry where growth, margins, and inventory agility move quickly. Timeframes referenced in the discussion span the back half of the current year, next year, and 2026; the de minimis threshold noted is USD $800.
Quick Summary
- Guidance cut for the second time this year due to tariff impacts and de minimis removal.
- Policy change executed at the end of August accelerated cost headwinds.
- Roughly two thirds of online orders previously shipped from Canada; most under $800 threshold, moving from no tariff to tariff.
- Distribution network being reconfigured; adjustments will take time.
- Three levers: vendor cost reductions, internal cost reductions, and selective price increases based on elasticity.
- International momentum continues; U.S. performance disappointing, especially in lounge/social categories.
- Lululemon says it gained share in premium activewear in Q2, driven by performance apparel.
- Product “newness” mix to rise from 23% on average to 35% next year.
- Back-half guidance reflects momentum uncertainty; no 2026 guidance yet beyond tariff/de minimis impact.
- Company highlights a strong balance sheet and “best-in-class” margin structure (no figures disclosed).
Snapshot Financials and Operating Context
| Metric | Latest Commentary |
|---|---|
| Revenue | Not disclosed |
| Growth | Guidance lowered; international growth continues; U.S. performance below expectations |
| Margins | Described as “best-in-class” by management; tariff and de minimis changes are headwinds (no figures disclosed) |
| Cash / FCF | “Great balance sheet, cash position” (no figures disclosed) |
| Debt / Liquidity | Not disclosed |
| Customers / Demand | New guest positive; low-to-mid value guest spend up YoY; high-value guest retention up YoY; frequency linked to core awaiting newness |
| Market Share | Share gains in premium activewear in Q2; growth in performance apparel |
Sentiment and Themes
Overall tone: Negative 55% / Neutral 25% / Positive 20% (driven by guidance cuts and U.S. weakness, partially offset by share gains in performance apparel and a planned newness ramp).
Top 5 Themes
- Tariffs and de minimis removal increasing landed costs
- Product newness/mix reset, especially in lounge and social
- U.S. demand softness vs. ongoing international momentum
- Pricing elasticity and selective price increases
- Distribution network reconfiguration (Canada to U.S./elsewhere)
Analysis and Insights
Growth and Mix
Lululemon’s growth narrative is bifurcated: international remains constructive, but the U.S. is dragging results. Management pins the U.S. softness on insufficient “newness” in lounge and social categories, even as performance apparel grew and captured market share in Q2. That implies a mix issue rather than a broad brand erosion—core guests are “waiting and reacting to new” while high-value guests overindex on new styles and show higher retention.
The planned step-up in newness from 23% to 35% next year is material. If executed, this could reignite frequency and average unit retail (AUR), particularly in underperforming lounge/social. However, newness also raises development and inventory risk; success hinges on product-market fit and supply agility.
Profitability and Efficiency
Gross margin faces immediate headwinds: the removal of the de minimis exception moves a large volume of cross-border e-commerce (orders under $800) from zero tariff to tariff-bearing. With roughly two-thirds of online orders historically shipped from Canada, landed cost inflation is nontrivial. On top of that, reconfiguring distribution (less Canadian DC reliance) may introduce transitional inefficiencies.
Management’s three levers—vendor cost downs, internal cost reduction, and selective pricing—aim to defend margins. The selective pricing approach based on elasticity is prudent, but in a softer U.S. apparel backdrop, price realization may be uneven. Opex leverage may be limited near term if growth is constrained while investment in product newness ramps.
Cash, Liquidity, and Risk
The company cites a strong balance sheet and cash position, but no amounts were disclosed. That flexibility is important as Lululemon funds assortment refresh, retools its distribution network, and navigates potential volatility in U.S. demand. Key risks include: sustained tariff drag, execution risk in distribution redesign, pricing elasticity misreads, and the possibility that product updates take longer than expected to shift demand.
| Catalyst / Risk | Near-Term Impact |
|---|---|
| Distribution reconfiguration | Could reduce tariff exposure over time; transition costs and complexity near term |
| Selective pricing | Supports margin; elasticity risk if U.S. apparel spend remains soft |
| Newness ramp (23% → 35%) | Potential to restore frequency and mix; execution and inventory risk |
| Tariff/de minimis policy | Clear cost headwind; reversals would be upside |
| International growth | Offset to U.S. weakness; scale and profitability not quantified |
Notable Quotes
- “About two thirds of our online orders were shipped from our Canadian facility, and majority of those orders are under the $800.”
- “We are in the work of shifting and changing our distribution network as a result and acting into it, but it will take some time.”
- “There will be some [price] increases… It’s not across the board. It’s very strategic in where we’ve seen opportunity to price.”
- “Next year is really the shift