Lululemon Athletica, Inc. ( LULU ) stock dropped Friday morning after the athleisure giant released a revised forecast alongside its second-quarter earnings, revealing that its annual profit and revenue expectations fell well below Wall Street estimates. 

LULU stock is dropping. See the real-time chart here. 

Tariffs Hit Lulu Hard

On the company's earnings call, Lululemon executives described a major financial challenge as the impact of U.S. tariffs and the recent removal of the de minimis exemption threatens to erode profits by approximately $240 million. 

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The de minimis exemption previously allowed Lululemon to ship e-commerce orders below $800 into the U.S. duty-free. This helped keep costs low. 

The U.S. eliminated the trade policy as of Aug. 29. Consequently, Lululemon faces higher expenses for goods shipped from overseas. Manufacturing hubs like China and Vietnam account for much of its sourcing. 

Lululemon CEO Calvin McDonald cited these changes as key factors in the company's revised guidance and promised strategic actions to offset the impact, including price increases and renegotiations with vendors.

The removal of the de minimis exemption, coupled with higher tariffs, is expected to reduce Lululemon's gross profit by $240 million and cause a projected 2.2 percentage-point decline in operating margins for the year. 

CFO Meghan Frank spoke directly to the impact on Lululemon's gross margin. 

"We now expect gross margin to decrease approximately 300 basis points versus 2024 relative to our prior guidance for a 110 basis point decrease. We expect the additional 190 basis points decrease to be driven predominantly by increased tariffs, including the removal of the de minimis exemption," Frank said. 

Wall Street Reacts

Analysts responded to Lululemon's report with a wave of downgrades. Evercore ISI, Wells Fargo, Stifel, and others cited deteriorating growth and concerns over profit margins. 

LULU Price Action: Lululemon shares dropped 16.42% to $172.26 at the time of publication, according to data from Benzinga Pro. 

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