EPS of $2.60 matched estimates; revenue of $2.37B beat slightly. It was the second disappointing quarter, and guidance is mixed with concern on tariffs and shifting fashion trends. Lululemon's new offerings were well received in 1Q, yet softer traffic driven by consumer uncertainty and added levies are weighing on the outlook. Mitigation efforts like price hikes and sourcing efficiencies could start to help in 2H and into next year. Still, full-year gross margin may fall 110 bps (vs. 60 bps prior), based on guidance, amid tariffs. Notably, in 2Q, sales might rise 7-8%, also per guidance, trailing consensus. Gross margin could fall 200 bps on higher costs tied to tariffs and bigger markdowns. In 1Q, sales rose 7%, topping guidance as China's gained 21%. Management lowered its full-year EPS view to $14.58-$14.78 vs. $14.95-$15.15 previously. A haircut was deserved here. We think the stock recovers over time, and is very cheap vs historicals at 17X earnings. But we need the tariff uncertainty to end for the stock to gain any positive traction. We like it still, but some patience is clearly going to be needed here.
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