Lululemonthe troubles are far from over.
The sportswear retailer lowered its full-year guidance and issued a weak quarterly outlook on Thursday as interim CEO Meghan Frank blamed “negative media commentary” and a recent product launch that failed to impress consumers.
“We’ve experienced negative perceptions in the media and social media regarding our product, which has impacted traffic and top line performance,” Frank told analysts during the company’s earnings call while explaining why the company’s performance declined at the end of its first fiscal quarter. “Secondly, not all of our product launches have met our expectations. Although we have had several successful launches so far this year… [they have] did not generate the expected visitor response.”
The company’s shares fell nearly 10% in extended trading following the report. Lululemon’s stock is down nearly 40% this year as of Thursday’s close.
Lululemon now expects fiscal 2026 sales between $11 billion and $11.15 billion, down from the previous range of between $11.35 billion and $11.50 billion. Analysts were expecting full-year sales of $11.48 billion, according to LSEG.
Lululemon also lowered its earnings guidance by more than $1 per share. It now expects earnings per share to be between $10.95 and $11.15 for the year, down from a previous range of $12.10 to $12.30. Analysts were expecting $12.30 per share, according to LSEG.
The current quarter is not looking much better. Lululemon expects sales to be between $2.45 billion and $2.48 billion, below expectations of $2.60 billion, according to LSEG. It expects earnings per share to be between $1.76 and $1.81, well below expectations of $2.68, according to LSEG.
Although Lululemon’s guidance failed to meet forecasts, it beat expectations on the top and bottom lines during the first fiscal quarter, despite expectations that it had fallen sharply since the retailer last reported earnings. Here’s how the company performed compared to Wall Street’s expectations, based on a survey of analysts conducted by LSEG:
- Earnings per share: $1.69 vs. $1.68 expected
- Net worth: $2.47 billion versus $2.43 billion expected
The company’s reported net income for the three-month period ended May 3 was $195.0 million, or $1.69 per share, compared with $314.6 million, or $2.60 per share, a year earlier.
Sales rose to $2.47 billion, up nearly 4% from $2.37 billion last year. Comparable sales grew 1%, better than expectations of 0.4%, according to LSEG.
Lululemon’s problems were centered in the Americas, its largest and most important region. During the quarter, comparable sales fell 5% in the market, marking the fifth consecutive quarter of decline. Lululemon’s overall business is still growing, but it has primarily seen that increase in China and other international regions, which make up a smaller portion of its revenue.
For the quarter, international sales grew 22% while comparable international sales grew 13%.
Marketing has been a sore spot for Lululemon, but making a profit has been an even bigger challenge. During the quarter, the margin fell by a staggering 4.1 percentage points to 54.2%, worse than expectations of 54.6%, according to StreetAccount. The company was a major beneficiary of the now-defunct de minimis exemption, which allowed it to ship packages free of charge across the Canadian border into the US, and was also hit hard by the costs.
With fewer people coming to its stores and websites to buy workout clothes, the company again relied heavily on discounting to drive sales, which hurt its reputation as a premium brand. In his statement, Frank said that full-price sales improved in North America from the previous quarter, which he called a “good” signal for the business.
It has also spent the past six months in a huge proxy contest with its founder, which cost a lot of money and took management’s attention away from its transformation.
On top of all those struggles, Lululemon, like everyone else, has also had to deal with a new conflict in the Middle East and rising fuel prices, which have also increased costs.
In the three months since Lululemon last reported earnings, it has made progress in solving some of its challenges. It hired Nike veteran Heidi O’Neill to be its next CEO and settled its proxy battle with its founder. Investors will probably be relieved Lululemon’s management team no longer has to focus on money after the proxy contest, but some still feel sour about O’Neill’s appointment, especially since he won’t be able to start until September.
Under the direction of two interim CEOs, CFO Frank and Chief Commercial Officer André Maestrini, Lululemon has been working to rebuild its product mix and address its domestic growth challenge. But the real changes in strategy won’t come until O’Neill starts.
Given how long it takes for Lululemon to go from product concept to market, there are concerns that it will take longer than expected to address the challenges that have weighed on its business.
Still, Lululemon argued that O’Neill was the right person for the job. While at Nike, O’Neill founded and built Nike’s women’s business and grew it into a multi-billion dollar franchise. He also worked to reduce product lead times — experience that will serve him well as Lululemon’s CEO.
