Lululemon Plunges as Forecast Cut Raises Stakes for Incoming CEO
Lululemon Athletica shares fell sharply Friday after the athletic-apparel company reduced its full-year financial outlook for the second time this year, intensifying concerns about weakening demand and the scale of the turnaround awaiting its incoming chief executive.
The company, which trades under the symbol LULU, reported second-quarter revenue of approximately $2.42 billion, down 4% from a year earlier. Comparable sales declined 9%, reflecting continued pressure on customer traffic and demand for some of the retailer's core products.
The Americas remained the biggest source of weakness. Revenue in the region declined 8% during the quarter, while comparable sales fell 12%. Particularly concerning for investors was weakness in leggings, historically one of the company's signature product categories, where sales declined approximately 20%.
International operations provided some offset to the North American slowdown. International revenue increased 4%, although growth was only about 2% when currency movements were excluded. The results suggest the company's global expansion is still contributing growth, but not yet at a scale sufficient to overcome deteriorating performance in its largest market.
Lululemon earned $2.92 per diluted share during the quarter, down from $3.10 a year earlier. Net income declined to approximately $329 million from roughly $371 million in the comparable period. The reported earnings also benefited significantly from tariff refunds received during the quarter.
The biggest disappointment for investors in LULU was management's revised outlook. The company now expects fiscal 2026 revenue of $10.35 billion to $10.5 billion, implying a decline of approximately 5% to 7% from the prior year. Its previous forecast called for revenue between $11 billion and $11.15 billion.
Management also reduced its full-year earnings forecast to between $9.48 and $9.73 per share, down substantially from its previous range of $10.95 to $11.15. The latest projection includes approximately $0.86 per share associated with tariff refunds, making the underlying earnings picture weaker than the headline forecast alone suggests.
The outlook for the current quarter indicates that management does not expect a quick recovery. Third-quarter revenue is projected between $2.29 billion and $2.32 billion, representing a year-over-year decline of approximately 10% to 11%. Earnings are expected to range from $0.93 to $0.98 per share.
Investors reacted aggressively to the reset. Shares of LULU dropped roughly 18% to 20% following the report, pushing the stock toward its lowest level in years. The decline extends an already difficult 2026 in which the shares had lost more than 40% before Friday's selloff.
The deterioration comes at a pivotal moment for the company. Heidi O'Neill is scheduled to take over as chief executive on September 8. The former Nike executive will inherit a retailer facing weaker store traffic, inconsistent responses to new products and increasingly aggressive competition throughout the premium athletic-apparel market.
Management has acknowledged that recent product introductions have not consistently connected with customers. The company is responding by adjusting its assortment, reducing the number of individual products carried in North American stores and focusing more heavily on styles it believes can restore excitement around the brand.
Cost control is also likely to become increasingly important. Lululemon built much of its operating structure during years of rapid expansion, leaving expenses that may prove difficult to support if revenue continues contracting. A prolonged sales slowdown could therefore force the new leadership team to balance investment in product innovation and marketing against pressure to reduce expenses.
The company enters that transition with financial resources that could provide some flexibility. Lululemon has approximately $1.4 billion in cash, giving management room to fund strategic changes without immediately facing the financial constraints confronting more heavily indebted retailers.
Wall Street nevertheless appears increasingly cautious. Multiple analysts reduced their price targets following the quarterly results, reflecting uncertainty about when North American demand might stabilize and how quickly the new CEO can restore momentum.
For LULU, the challenge is no longer simply maintaining the extraordinary growth that once defined the company. Investors now want evidence that management can reconnect with customers, strengthen its core product categories and prevent declining sales from turning into a prolonged erosion of the brand's competitive position.
