Lululemon‘s troubles are far from over.
The athletic apparel retailer lowered its full-year guidance and issued a weak current-quarter outlook on Thursday as interim CEO Meghan Frank blamed “negative commentary in the media” and recent product launches that failed to wow shoppers.
“We experienced spikes of negative commentary in the media and on social channels with regard to our brand, which had an impact on traffic and overall top line performance,” Frank told analysts during the company’s earnings call while explaining why the company’s performance declined at the end of its fiscal first quarter. “And second, not all of our product launches have met our expectations. While we’ve had several successful launches so far this year, we’ve seen others as we start Q2 not generate the anticipated guest response.”
When pressed on what specific negative commentary led to a decline in sales, Frank pointed to Lululemon’s proxy contest with founder Chip Wilson, who was outspoken in his criticism of the brand, as well as “questions about the composition” of some of its products.
“These stories have died down and subsided,” said Frank. “But we have not yet seen a return to our pre-disruption … trends.”
She said the company is “not sitting still” and is “moving with urgency to make the necessary adjustments to reaccelerate momentum, particularly in North America.”
The company’s shares dropped 11% in extended trading following the report. Lululemon’s stock has plunged about 40% this year as of Thursday’s close.
Lululemon is now expecting fiscal 2026 sales to be between $11 billion and $11.15 billion, down from a previous range of between $11.35 billion and $11.50 billion. Analysts were expecting full-year sales of $11.48 billion, according to LSEG.
Lululemon also cut its earnings guidance by more than $1 per share. It’s now expecting earnings per share to be between $10.95 and $11.15 for the year, down from a previous range of $12.10 to $12.30. Analysts were expecting $12.30 per share, according to LSEG.
The current quarter doesn’t look much better. Lululemon is expecting sales to be between $2.45 billion and $2.48 billion, below expectations of $2.60 billion, according to LSEG. It’s expecting earnings per share to be between $1.76 and $1.81, well below expectations of $2.68, according to LSEG.
While Lululemon’s guidance failed to meet forecasts, it did beat expectations on the top and bottom lines during its fiscal first quarter, albeit on expectations that have come down significantly since the retailer last reported earnings. Here’s how the company performed compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
- Earnings per share: $1.69 vs. $1.68 expected
- Revenue: $2.47 billion vs. $2.43 billion expected
The company’s reported net income for the three-month period that ended May 3 was $195 million, or $1.69 per share, compared with $314.6 million, or $2.60 per share, a year earlier.
Sales rose to $2.47 billion, up about 4% from $2.37 billion a year earlier. Comparable sales grew 1%, better than expectations of 0.4%, according to LSEG.
Lululemon’s woes have been centered on the Americas, its largest and most important region. During the quarter, comparable sales fell 5% in the market, marking the fifth straight quarter of declines. Lululemon’s overall business is still growing, but it has primarily seen that expansion in China and in other international regions, which make up a fraction of overall revenue.
During the quarter, international sales grew 22% while international comparable sales grew 13%.
Lululemon said it expects its declines in North America to continue. It anticipates sales will fall by a low-double digit percentage in the current quarter and by a high-single digit percentage for the full year. Meanwhile, it expects China sales will rise by a mid-to-high teens percentage during the current quarter and by about 20% for the full year.
Sales have been a sore spot for Lululemon, but profitability has been an even larger challenge. During the quarter, gross margin decreased a staggering 4.1 percentage points to 54.2%, worse than expectations of 54.6%, according to StreetAccount. The company was a large beneficiary of the now defunct de minimis exemption, which allowed it to ship packages duty free across the Canadian border into the U.S., and has also been hit hard by tariffs.
With fewer people coming to its stores and website to buy workout clothes, the company has also leaned more on discounting to drive sales, which has hurt its bottom line and its reputation as a premium brand.
It’s also spent the last six months in a dramatic proxy contest with its founder, which was costly and took management’s attention away from its turnaround.
In addition to all of those struggles, Lululemon, like everyone else, has also had to contend with a new conflict in the Middle East and surging gas prices, which are also increasing costs.
The company said the decline in its gross margin during the quarter was primarily attributable to tariffs, which impacted margins by 2.8 percentage points, and discounts, which grew 0.4 percentage points. The company expects gross margin to fall by another 4.1 percentage points during the current quarter, driven by higher tariffs and store investments. It anticipates markdowns will be 0.5 percentage points higher.
“While we continue to expect markdowns to improve modestly year over year in the second half,” said Frank. “The slower expected top line trends in Q2 will necessitate additional seasonal clearance.”
Lululemon expects its profitability challenges will moderate in the back half of the year. For the full year, the company anticipates gross margin will fall 0.9 percentage points, with markdowns flat to slightly higher. On a full-year basis, Lululemon expects to offset nearly all of its tariff impact, Frank said.
In the three months since Lululemon last reported earnings, its made some progress on addressing some of its challenges. It hired longtime Nike veteran Heidi O’Neill to be its next CEO and settled its proxy battle with its founder. Investors are likely to be relieved Lululemon’s management team no longer has to put its focus and cash behind the proxy contest, but some are still feeling sour over O’Neill’s appointment, particularly because she won’t be able to start until September.
Under the direction of two interim CEOs, CFO Frank and Chief Commercial Officer André Maestrini, Lululemon has been working to rebuild its product assortment and address its domestic growth challenge. But the real strategy changes won’t come until O’Neill starts.
Given how long it takes for Lululemon to get from product idea to market, there’s concern that it’ll take even longer than expected to fix the challenges that have been weighing on its business.
Still, Lululemon has contended that O’Neill is the right person for the job. While at Nike, O’Neill established and built Nike’s women’s business and grew it into a multibillion-dollar franchise. She also worked to reduce product lead times – experience that will serve her as Lululemon’s chief executive. Already, the company has made progress in reducing lead times from 18-to-24 months to 15-to-16 months and is working to further bring it down to between 12 and 14 months, Frank said.
