Lululemon cuts annual outlook, citing ‘negative’ media commentary and disappointing product launches

Lululemon‘s troubles are removed from over. 

The athletic attire retailer lowered its full-year steerage and issued a weak present quarter outlook on Thursday as interim CEO Meghan Frank blamed “damaging commentary within the media” and latest product launches that didn’t wow customers.

“We skilled spikes of damaging commentary within the media and on social channels with regard to our model, which had an impression on site visitors and total prime line efficiency,” Frank advised analysts through the firm’s earnings name whereas explaining why the corporate’s efficiency declined on the finish of its fiscal first quarter. “And second, not all of our product launches have met our expectations. Whereas we have had a number of profitable launches to date this yr, we have seen others as we begin Q2 not generate the anticipated visitor response.”

When pressed on what particular damaging commentary led to a decline in gross sales, Frank pointed to Lululemon’s proxy contest with founder Chip Wilson, who was outspoken in his criticism of the model, in addition to “questions in regards to the composition” of a few of its merchandise.

“These tales have died down and subsided,” stated Frank. “However we’ve not but seen a return to our pre-disruption … developments.”

She stated the corporate is “not sitting nonetheless” and is “shifting with urgency to make the required changes to re-accelerate momentum, significantly in North America.”

The corporate’s shares dropped 11% in prolonged buying and selling following the report. Lululemon’s inventory has plunged about 40% this yr as of Thursday’s shut.

Lululemon is now anticipating fiscal 2026 gross sales to be between $11 billion and $11.15 billion, down from a earlier vary of between $11.35 billion and $11.50 billion. Analysts have been anticipating full-year gross sales of $11.48 billion, based on LSEG. 

Lululemon additionally lower its earnings steerage by greater than $1 per share. It is now anticipating earnings per share to be between $10.95 and $11.15 for the yr, down from a earlier vary of $12.10 to $12.30. Analysts have been anticipating $12.30 per share, based on LSEG. 

The present quarter does not look a lot better. Lululemon is anticipating gross sales to be between $2.45 billion and $2.48 billion, under expectations of $2.60 billion, based on LSEG. It is anticipating earnings per share to be between $1.76 and $1.81, nicely under expectations of $2.68, based on LSEG. 

Whereas Lululemon’s steerage failed to satisfy forecasts, it did beat expectations on the highest and backside traces throughout its fiscal first quarter, albeit on expectations which have come down considerably for the reason that retailer final reported earnings. Here is how the corporate carried out in contrast with what Wall Road was anticipating, primarily based on a survey of analysts by LSEG:

• Earnings per share: $1.69 vs. $1.68 anticipated 
• Income: $2.47 billion vs. $2.43 billion anticipated 

The corporate’s reported web revenue for the three-month interval that ended Might 3 was $195.0 million, or $1.69 per share, in contrast with $314.6 million, or $2.60 per share, a yr earlier.  

Gross sales rose to $2.47 billion, up about 4% from $2.37 billion a yr earlier. Comparable gross sales grew 1%, higher than expectations of 0.4%, based on LSEG.

Lululemon’s woes have been centered on the Americas, its largest and most essential area. Throughout the quarter, comparable gross sales fell 5% out there, marking the fifth straight quarter of declines. Lululemon’s total enterprise continues to be rising, but it surely has primarily seen that growth in China and in different worldwide areas, which make up a fraction of total income. 

Throughout the quarter, worldwide gross sales grew 22% whereas worldwide comparable gross sales grew 13%.

Lululemon stated it expects its declines in North America to proceed. It anticipates gross sales will fall by a low-double digit share within the present quarter and by a high-single digit share for the complete yr. In the meantime, it expects China gross sales will rise by a mid-to-high teenagers share through the present quarter and by about 20% for the complete yr.

Gross sales have been a sore spot for Lululemon, however profitability has been a good bigger problem. Throughout the quarter, gross margin decreased a staggering 4.1 share factors to 54.2%, worse than expectations of 54.6%, based on StreetAccount. The corporate was a big beneficiary of the now defunct de minimis exemption, which allowed it to ship packages responsibility free throughout the Canadian border into the U.S., and has additionally been hit arduous by tariffs.

With fewer folks coming to its shops and web site to purchase exercise garments, the corporate has additionally leaned extra on discounting to drive gross sales, which has harm its backside line and its fame as a premium model.

It is also spent the final six months in a dramatic proxy contest with its founder, which was expensive and took administration’s consideration away from its turnaround.

Along with all of these struggles, Lululemon, like everybody else, has additionally needed to cope with a brand new battle within the Center East and surging fuel costs, that are additionally rising prices.

The corporate stated the decline in its gross margin through the quarter was primarily attributable to tariffs, which impacted margins by 2.8 share factors, and reductions, which grew 0.4 share factors. The corporate expects gross margin to fall by one other 4.1 share factors through the present quarter, pushed by greater tariffs and retailer investments. It anticipates markdowns will probably be 0.5 share factors greater. 

“Whereas we proceed to count on markdowns to enhance modestly yr over yr within the second half,” stated Frank. “The slower anticipated prime line developments in Q2 will necessitate extra seasonal clearance.”

Lululemon expects its profitability challenges will reasonable within the again half of the yr. For the complete yr, the corporate anticipates gross margin will fall 0.9 share factors, with markdowns flat to barely greater. On a full-year foundation, Lululemon expects to offset practically all of its tariff impression, Frank stated.  

Within the three months since Lululemon final reported earnings, its made some progress on addressing a few of its challenges. It employed longtime Nike veteran Heidi O’Neill to be its subsequent CEO and settled its proxy battle with its founder. Traders are prone to be relieved Lululemon’s administration group not has to place its focus and money behind the proxy contest, however some are nonetheless feeling bitter over O’Neill’s appointment, significantly as a result of she will not be capable of begin till September. 

Below the course of two interim CEOs, CFO Frank and Chief Industrial Officer André Maestrini, Lululemon has been working to rebuild its product assortment and handle its home development problem. However the true technique modifications will not come till O’Neill begins. 

Given how lengthy it takes for Lululemon to get from product thought to market, there’s concern that it will take even longer than anticipated to repair the challenges which have been weighing on its enterprise. 

Nonetheless, Lululemon has contended that O’Neill is the correct individual for the job. Whereas at Nike, O’Neill established and constructed Nike’s ladies’s enterprise and grew it right into a multibillion-dollar franchise. She additionally labored to scale back product lead occasions – expertise that can serve her as Lululemon’s chief govt. Already, the corporate has made progress in lowering lead occasions from 18-to-24 months to 15-to-16 months and is working to additional deliver it right down to between 12 and 14 months, Frank stated.