Lululemon Athletica (LULU) shares plummeted 7.03% during intraday trading on Friday, as investors reacted to President Trump's announcement of sweeping global tariffs that put the yoga-wear maker in the "tariff bullseye." The new trade measures have particularly affected apparel companies with significant production in Asian countries.
The impact on Lululemon could be substantial, given that 86% of its products are manufactured in Vietnam, Cambodia, Sri Lanka, Indonesia, and Bangladesh - countries now facing tariffs ranging from 37% to 49%. Analysts estimate that if the company were to fully pass on the cost to American consumers, it could result in price increases of 11% to 12% across its product line. However, Lululemon is more likely to take a "surgical" approach to pricing, potentially lowering gross margins by 720 basis points.
The broader market also felt the impact of the tariff news, with other apparel and shoe makers like Nike and Gap seeing significant declines. Adding to the negative sentiment, China announced retaliatory measures, including its own 34% duties on all U.S. goods and restrictions on rare earth exports. In response to these developments, Bernstein cut its price target for Lululemon from $405 to $350, although it maintains an outperform rating on the stock, citing the company's strong margins and affluent customer base as potential mitigating factors.
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