Lululemon Athletica LULU shares fell sharply on Friday after the athletic apparel retailer lowered its annual profit outlook and issued weaker-than-expected sales guidance, deepening investor concerns about the pace of its turnaround efforts.
The stock dropped nearly 9% in early trading after the company projected flat to slightly lower revenue for the full year.
The company also warned that profitability would come under pressure as it increases promotions and works to revive demand in its core North American market.
The selloff adds to a difficult period for the Vancouver-based company, whose shares have lost nearly 65% of their value over the past 12 months as competition intensifies and product momentum weakens.
Forecast cut raises concerns over recovery
For the full year, Lululemon now expects revenue to range between $11 billion and $11.15 billion, representing a decline of 1% to flat growth.
The previous forecast had called for revenue growth of 2% to 4%.
The company also reduced its earnings-per-share guidance to between $10.95 and $11.15, down from its earlier outlook of $12.10 to $12.30.
The outlook for the current quarter was equally disappointing.
Lululemon forecast revenue of $2.45 billion to $2.48 billion and earnings of $1.76 to $1.81 per share, both well below analyst expectations compiled by FactSet.
The weaker projections come as the company ramps up discounting, refreshes its product assortment, and adjusts marketing strategies while also dealing with margin pressure from higher tariffs.
Brand backlash and product launches weigh on sales
Chief Financial Officer and Interim Co-Chief Executive Meghan Frank acknowledged that recent negative publicity has hurt the brand’s performance.
The company’s image “took a beating in the media and on social channels recently,” Frank told analysts, adding that weaker consumer traffic had weighed on sales.
Lululemon also admitted that some recent product introductions failed to generate the momentum management had anticipated.
A newly launched yoga apparel collection received positive customer feedback but failed to drive broader purchasing activity across the company’s product portfolio.
“These styles were met with good guest response, but so far, the campaign hasn’t had the expected halo effect on other areas of our assortment,” Frank said.
Despite the setbacks, she stressed that management was moving quickly to address the issues.
“I want to emphasize that we are not sitting still and we are moving with urgency to make the necessary adjustments to re-accelerate momentum, particularly in North America,” Frank said during a call with analysts.
Leadership transition adds uncertainty
The guidance cut arrives during a period of significant leadership change for the retailer.
Lululemon is currently being run by Frank and President and Chief Commercial Officer André Maestrini following the departure of former CEO Calvin McDonald earlier this year.
Former Nike executive Heidi O’Neill is scheduled to take over as chief executive in September, but analysts caution that meaningful improvements may take time.
The company recently settled a long-running dispute with founder Chip Wilson, who had publicly criticized management and launched a proxy fight aimed at reshaping the board.
Under the agreement, Wilson will nominate two directors, while the company will appoint a third board member with apparel and brand expertise.
In exchange, Wilson agreed to suspend his campaign and refrain from public criticism for 18 months.
Analysts see a lengthy turnaround ahead
Wall Street analysts reacted cautiously to the earnings update, warning that competitive pressures remain intense.
Barclays analysts said Lululemon had entered a “trap” phase where business fundamentals are deteriorating amid fierce competition and weakening pricing power.
Jefferies analyst Randal Konik said worsening sales trends in the United States remain a major concern and pointed to declining store productivity as a key risk.
William Blair analysts noted that negative social media commentary and disappointing product launches are likely to result in weaker comparable sales and heavier markdown activity through the second quarter.
The firm also warned that 2027 could become another transition year given the timing of the leadership changes.
Oppenheimer maintained confidence in the strength of the brand but expressed concern about the company’s near-term prospects.
Analysts Brian Nagel and Andrew Chasanoff said they remain constructive on “the underlying prowess of the Lululemon brand” but warned that the company risks stagnation as smaller competitors continue to gain ground in the athleisure market.
While O’Neill’s appointment is viewed positively, her non-compete agreement means she cannot begin until September, potentially delaying major product initiatives until well into 2028, according to the firm.
For investors, the latest results suggest Lululemon’s turnaround may take longer than expected, with leadership changes, product execution challenges, and intensifying competition all standing in the way of a quick recovery.
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