Lululemon Athletica Inc. (NASDAQ: LULU) shares plummeted approximately 20% to $100.07, reaching an eight-year low, after the company drastically cut its full-year outlook for the second straight quarter. The athleisure retailer reported a Q2 revenue of $2.42 billion, a 4.3% year-over-year decrease and missing the consensus of $2.46 billion. Comparable sales dropped 9% globally, with Americas comps down 12% and leggings sales declining about 20%. The stock is now down 51.85% year-to-date.
The company's full-year FY2026 revenue guidance was slashed to $10.35 billion to $10.50 billion, representing a 5% to 7% decline, a significant reversal from previous guidance of 2% to 4% growth. EPS guidance also fell to $9.48 to $9.73 from an earlier projection of $12.10 to $12.30. Q3 revenue is expected to contract by 10% to 11%, and the Q3 operating margin is guided to collapse to 6.5% from 17% a year ago. CFO Meghan Frank described the revised outlook as a "prudent approach."
Incoming CEO Heidi O’Neill, a former Nike Inc. executive, is set to take over next week. She faces a challenging environment marked by product innovation issues and an extended slowdown. Bloomberg Intelligence senior analyst Poonam Goyal noted the results are "bad all around" and does not foresee immediate performance improvement. JPMorgan analyst Matthew Boss slashed his price target on Lululemon by 38%, from $154 to $95, while maintaining a "Neutral" rating, citing the company's significant challenges, including a 60% lower Q3 earnings outlook compared to Wall Street consensus. The company plans a strategic review under O'Neill's leadership.
Lululemon's struggles extend beyond North America, where traffic has slowed, and new product launches have underperformed. China mainland, once a key growth driver, saw revenue rise only 4% (or decline 2% adjusted for currency) with comparable sales dropping 8%. Management pointed to negative online commentary impacting brand sentiment in China and a weaker Tmall shopping event. The company is attempting a turnaround by focusing on better-performing styles, reducing SKUs, and increasing marketing efforts around events like the U.S. Open and fall marathons. However, profit margins are expected to continue declining due to falling revenue and elevated marketing and store investment costs.
