TLDR
- Shares of LULU plummeted up to 20% in Friday’s premarket session following quarterly results that fell short of analyst projections
- Second-quarter revenue totaled $2.4 billion, missing the consensus estimate of $2.458 billion and marking a 4% year-over-year decrease
- Comparable store sales plunged 9%, significantly worse than the anticipated 4.6% drop
- The athletic apparel company reduced its annual revenue forecast to $10.35B-$10.5B, representing a 5%-7% year-over-year contraction
- New CEO Heidi O’Neill assumes leadership next week amid intensifying competition from brands like Alo and Vuori
Shares of Lululemon experienced a significant decline on Friday following the athletic apparel retailer’s announcement of disappointing second-quarter performance and its second reduction to annual guidance this fiscal year.
Lululemon Athletica Inc., LULU
The shares plummeted to approximately $100.89 during early market hours, reflecting a decline of roughly 17% after touching down as much as 20% before the opening bell. This positions the stock for one of its steepest single-session declines since the market turmoil of March 2020.
Second-quarter revenue reached $2.4 billion, falling short of the Street’s $2.458 billion projection and declining from the prior year’s $2.525 billion. Comparable store sales contracted by 9% throughout the period, significantly exceeding the 4.6% decrease that Wall Street had anticipated.
While adjusted earnings of $2.92 per share surpassed the $1.79 consensus, this metric incorporated 86 cents per share stemming from federal tariff refund benefits. Jefferies analyst Randal Konik noted this makes the fundamental earnings performance “materially worse than the headline.”
Annual Outlook Cut for Second Time
Lululemon revised its annual revenue projection downward to $10.35 billion to $10.5 billion, marking a 5% to 7% contraction versus the previous year. This represents a dramatic reduction from the company’s earlier forecast of $11 billion to $11.15 billion.
Annual adjusted earnings per share expectations now sit between $9.48 and $9.73, substantially below the previous range of $10.95 to $11.15. Both measures fell short of analyst expectations.
Konik characterized the quarterly performance as a “triple whammy,” highlighting deteriorating sales across U.S. retail locations, women’s merchandise including a 20% collapse in leggings sales, and China on a constant-currency basis.
Citi analyst Paul Lejuez observed there “weren’t really any significant positives” in the report, noting the company is struggling with both customer traffic and conversion challenges across all geographic markets.
Incoming CEO Faces Significant Challenges
Former Nike executive Heidi O’Neill will assume the CEO position next week, taking charge of a brand that has surrendered market share to upstart competitors like Alo and Vuori while grappling with customer complaints about product quality.
Konik suggested O’Neill faces “a mountain to climb,” as brand strength is “fading fast and share losses mounting.” He partially attributed the margin pressure to strategic choices made under former CEO Calvin McDonald, whose expansion into larger, costlier retail locations elevated the company’s fixed cost structure.
Morningstar analyst David Swartz told Yahoo Finance the guidance revision is strategically prudent. “There’s no reason to put out numbers that are going to be too aggressive and hard to hit,” he explained. He also highlighted the company’s debt-free balance sheet, emphasizing that the primary challenge involves revenue expansion rather than financial stability concerns.
While the lowered guidance establishes more achievable benchmarks for O’Neill, Lejuez warned that “another cut is also possible once she starts.”
LULU shares have now declined more than 40% year-to-date. The stock also experienced selling pressure in April when O’Neill’s appointment was initially revealed.
In May, Lululemon finalized an agreement with founder Chip Wilson to end a proxy dispute concerning board governance, with O’Neill’s selection being among the contentious issues.
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