LULULEMON Athletica cut its annual profit forecast on Thursday and projected second-quarter earnings well below Wall Street estimates, as the athletic apparel maker’s products failed to win back shoppers in its key US market.
Shares of the company dropped 11 percent in extended trading, after it said it expects second-quarter gross margin to decrease about 410 basis points, driven in part by higher tariff costs and investments.
Vancouver-based Lululemon, known for its pricey leggings and athleisure wear, has joined peers in bearing the brunt of muted spending on higher-margin items amid stubborn inflation pressures.
The sector-wide strain comes as the retailer also faces a leadership transition, competition from upstarts, including Alo Yoga and Vuori, and waning brand appeal in North America amid design missteps and a lack of freshness.
The company is focused on boosting full-price sales. Still, slower-than-expected revenue trends “will necessitate additional seasonal clearance,” Meghan Frank, interim co-CEO and chief financial officer, said on a post-earnings call with analysts.
Investors are on edge about whether Lululemon’s incoming CEO Heidi O’Neill can reignite sales once she assumes the role in September. The company ended a monthslong proxy fight with founder Chip Wilson in May, but its challenges persist. Its stock has tumbled about 40 percent this year.
First-quarter revenue in the United States — its biggest market — fell 4 percent in constant dollars, compared with a 2-percent increase a year ago. Quarterly revenue in the China market, however, rose 23 percent in constant dollars.
“The company has a strong brand, but an overstretched one, and we fear ongoing revenue declines in North America as the business needs to re-elevate its offering and brand story,” said Guggenheim Securities analyst Simeon Siegel.
Product hype remains muted Lululemon’s two interim CEOs said they are focused on getting new products to shoppers more quickly, having reduced product development timelines from 18–24 months to 15–16 months.
But product launches in the first quarter failed to generate as much excitement as the company was hoping, Frank said.
Its yoga campaign, for example, “hasn’t had the expected halo effect on other areas of our assortment,” Frank said. She also pointed to “negative commentary” about the company as a headwind.
Lululemon forecasts second-quarter profit per share between $1.76 and $1.81, compared with analysts’ average estimate of $2.68, according to data compiled by LSEG.
The retailer expects fiscal 2026 revenue to be flat to decline 1 percent, compared with its prior forecast of a 2-percent to 4-percent increase.
It also expects full-year earnings per share to be between $10.95 and $11.15, versus $12.10 to $12.30 projected earlier.
