FILE PHOTO: A logo is displayed above a Lululemon outlet retail store at Bicester Village in Oxfordshire, Britain, August 21, 2024. REUTERS/Hollie Adams/File Photo

By Savyata Mishra and Kanchana Chakravarty

(Reuters) -Lululemon Athletica's shares slumped 20% in early trading on Friday after the Canadian yogawear retailer signaled a tepid holiday season, citing lackluster demand and steep tariff costs.

The company, which was hopeful until recently that its weekly launches would boost demand, slashed its 2025 sales and profit forecasts on Thursday. It also expects a significant hit from the U.S. ending the "de minimis" exemption, which allowed shipments under $800 to enter duty-free.

Executives said sales fatigue in its Scuba and Dance Studio pants — popular among its loyal, high-value shoppers — has prompted a push to speed up innovation and reduce dependence on bestsellers.

Analysts noted the merchandise reset will take time and that demand could weaken further amid ongoing economic uncertainty.

"In light of a cautious consumer and competitive backdrop, LULU will need to further address its assortment, with the newness on the technical side not enough to offset softness," BTIG analyst Janine Stichter said.

At least 10 brokerages trimmed their price target on the stock following the results.

The company's shares, which have lost 40% of their value this year, were trading at $164.49 on Friday. Rival Nike's shares also slipped 1%.

Lululemon's U.S. sales have struggled amid rising competition from emerging niche brands such as Alo Yoga and Vuori, forcing it to shift its focus to new markets, especially China, to make up for sluggish demand at home.

"It's all about whether this brand can bend without breaking under tariff pressure and home-market weakness," said David Bartosiak, analyst at Zacks Investment Research.

Lululemon warned that U.S. levies on Vietnam and China, and the removal of the de minimis rule, would cost it $240 million this year, and could rise to $320 million in 2026.

Second-quarter comparable sales for Lululemon's Americas segment, its largest, fell 1%, while international sales rose 15%.

Lululemon's forward price-to-earnings multiple, a common benchmark for valuing stocks, is 13.82, well below Nike's 39.21, per data compiled by LSEG.

(Reporting by Kanchana Chakravarty and Savyata Mishra in Bengaluru; Additional reporting by Neil J Kanatt; Editing by Sonia Cheema and Shinjini Ganguli)