Lululemon has lowered its annual earnings estimates, citing sluggish demand and increased costs related to US tariffs. Its stock plunged 22% in after-hours trading on Thursday after releasing disappointing Q2 forecasts.

Lululemon Athletica points to weaker store traffic in the US, which it attributes to economic uncertainty, inflationary pressures, declining consumer confidence, and restrictions on discretionary spending.

The Trump administration's pricing strategy, marked by unpredictable tariffs, is reigniting fears of stagflation in the US. Even the most affluent consumers are now focusing on essential purchases at the expense of premium products.

In response, companies in the sector are diversifying their sources of supply and revising their prices to preserve margins. "We plan to implement strategic price increases on a small portion of our offering, and these increases will remain modest," said Meghan Frank, Lululemon's CFO. The company also intends to renegotiate with its suppliers and reduce costs.

In 2024, 40% of Lululemon's products were manufactured in Vietnam, and 28% of its fabrics came from mainland China.

The group is now targeting annual earnings of between $14.58 and $14.78 per share, down from its initial range of $14.95 to $15.15. Q2 earnings are below the LSEG consensus. Expected revenue of between $2.54bn and $2.56bn, is however, in line with the consensus. Bloomberg analysts note: "Lululemon is targeting $12.5bn in revenue by 2026, although the economic slowdown and tariffs make this target difficult to achieve."

"Lululemon hasn't launched any flagship products recently, which is starting to weigh," notes David Swartz, an analyst at Morningstar. The latest collections, such as the Glow Up activewear line and the new Daydrift lifestyle pants, have failed to boost sales.

"Lululemon is used to exceeding expectations. So when it doesn't raise its forecasts, it's already seen as a disappointment," concludes Swartz.