When Yoga Meets Tariffs: Why Lululemon’s Magic Pants Lost Their Stretch

Lululemon once seemed immune to gravity, floating atop the athleisure boom. But over the last six months, gravity has returned with a vengeance: the stock is down an eye-watering 44.7% in that span, and 22.1% over the last year. How did the darling of premium yoga wear find itself in a downward dog?

Beneath the Studio Lights: Numbers That Don’t Lie

Lululemon’s financials hardly read like a crisis. In Q1 2025, revenue grew 7% year-over-year to $2.4 billion, beating expectations. Gross margin reached a robust 58.3%, and EPS clocked in at $2.60—comfortably ahead of Wall Street consensus. Operating income hit $439 million, representing a healthy 18.5% margin. By all appearances, the company is still limber.

But markets don’t just trade on what is—they trade on what comes next. Lululemon’s guidance for full-year 2025 landed with a thud: projected revenue growth of just 5-7%, and EPS in the range of $14.95 to $15.15. That’s a stretch, but not the heart-pounding growth investors paid up for in the glory days. The day after Q4 earnings (March 27, 2025), shares plummeted 14%. The malaise set in, and hasn’t left since.

The American Consumer: Running Out of Breath

For years, Lululemon could count on the US consumer for relentless demand. Now, even premium shoppers are pausing for breath. Comparable sales in the Americas declined 1% in Q1 2025—while China Mainland soared 21% and the Rest of World climbed 16%. The US, once the engine, has become the drag.

The culprit? Rising credit card delinquencies—now at 7.18%, the highest since the financial crisis. With higher interest rates and mounting inflation, even Lululemon’s affluent base is feeling pinched. Traffic in US stores has slowed, and the “newness” of product launches like Glow Up and BeCalm can only do so much when wallets tighten.

Tariffs: The Hidden Cost in Every Seam

Trade winds have shifted, and Lululemon is caught in the squall. Tariff headwinds, especially on imports from Asia, have eaten into margins and led to more cautious guidance. The company expects gross margin to decrease by 110 basis points this year, a sharp reversal from the recent trend of expansion. These are not just accounting quirks—they are the real-world impact of a geopolitically fracturing world, where supply chains are as taut as a yoga band.

Buybacks and Band-Aids: Why Capital Alone Isn’t Healing

Lululemon has been aggressive in returning capital to shareholders, repurchasing over $1.3 billion in stock in nine months and authorizing an additional $1 billion. But the buybacks haven’t put a floor under the share price. Investors aren’t worried about yesterday’s cash flows—they’re fretting about tomorrow’s growth. The company’s free cash flow to EBITDA, while still strong at 45.8%, is down from the 65.2% peak seen in 2024, signaling pressures from inventory build and softer sales velocity.

Competition at the Crossroads: The Athleisure Arms Race

Lululemon’s once unassailable moat is now ringed by upstarts and titans alike. Nike, Adidas, Vuori, and Alo Yoga are all chasing the premium activewear prize. Even with a 6.5% global market share and net income margin of 16.8%, Lululemon’s brand awareness still lags in Europe and Asia. As the global athletic apparel market races toward a $400 billion valuation by 2028, the pie is getting larger—but so are the slices others are carving out.

International Escape Velocity—But Is It Enough?

The silver lining: Lululemon’s international business is punching far above its weight. Sales in China and other overseas markets are rising at double-digit rates, and the company’s Power of Three x2 plan targets $12.5 billion in annual revenue by 2026. The question: Can this global growth offset the US slowdown? Right now, the market says “not yet.”

The Stretch Test: More Than Just a Correction?

Is the recent plunge an overreaction, or a sober reassessment? For now, Lululemon remains a marvel of operational efficiency—boasting a 42.5% return on equity and an industry-leading inventory turnover ratio. But the “magic pants” narrative is being tested by forces outside the studio: macroeconomic crosswinds, tariff turbulence, and the cold reality that no brand, however beloved, can outrun a tightening consumer wallet forever.

The next few quarters will reveal whether Lululemon can regain its flexibility—or if the market’s skepticism is, in fact, the new normal.