Dive Brief:
- Lululemon entered 2026 with cleaner inventory than it expected, powered by SKU reductions and rebalancing, key components of its push to return to full-price sales growth this year, according to its Q4 2025 earnings call.
- Although the apparel brand reported a 6% year-over-year increase in inventory on a unit basis, that number was below its guidance for the quarter, Meghan Frank, interim co-CEO and CFO, said, noting that the company expects unit-based inventory to be flat this year.
- “We are pleased with the composition of our inventory as we entered the spring season, as it is more reflective of our go-forward vision for the brand,” Frank said.
Dive Insight:
Lululemon’s efforts to rebalance its inventory came amid a challenging environment for its supply chain primarily driven by an onslaught of new tariffs from the Trump administration combined with the removal of the de minimis exemption.
Without the ability to lean on the decades-old trade provision that allowed goods valued under $800 to enter the U.S. duty free, many of Lululemon’s U.S.-bound orders were subject to tariffs they once avoided.
Overall, the company faced $275 million in tariff costs in 2025, according to the call. The Canada-based apparel brand managed to offset roughly $62 million of that impact via various mitigation efforts, previously stating that such strategies included raising some prices and negotiating with vendors for lower rates.
Meanwhile, other apparel and accessory brands have rewired their networks in the post de minimis era.
For example, apparel retailer Aritzia previously fulfilled some U.S.-bound orders in Canada, but has since moved all such operations to an expanded distribution center in Ohio. Similarly, jewelry maker Pandora recently opened a distribution center in Canada so orders meant for customers in the country didn’t have to be shipped to U.S. facilities first, thus incurring duties.
Although the Trump administration’s tariff regime is shifting in the wake of a February Supreme Court ruling invalidating some levies, Lululemon does not expect to leave tariff pressures in 2025. The company is forecasting a gross tariff impact of $380 million this year, with its sights set on mitigating $160 million.
Additionally, Lululemon is one of many companies that filed lawsuits to seek refunds from the administration immediately after the high court ruling. Since then, U.S. Customs and Border Protection has launched a system to deliver returns for the levies, although it is still developing capabilities to include all affected entries.
As it navigates this changing tariff environment, Lululemon will target additional cost savings in 2026 by simplifying its operations and further increasing efficiency across inventory management and procurement while capitalizing on automation and AI opportunities, Frank said.
