Lululemon Athletica on Thursday slashed its full-year forecasts again, underscoring that incoming CEO Heidi O’Neill has her work cut out – to win back shoppers from newer rivals by revamping the athleisure brand’s product line.
Shares of the Vancouver-based company, which also missed quarterly sales estimates, tumbled about 18% in extended trading. The stock has fallen nearly 69% since early 2025.
Lululemon, known for its high-priced stretchy pants and athletic tops, has endured several quarters of sluggish sales amid waning brand appeal, ceding ground to newer competitors such as Alo Yoga and Vuori in its key North America market. Executives acknowledged the root cause: a lack of fresh compelling product, combined with recent marketing missteps.
Weakness in China led the second-quarter miss, executives said on a post-earnings call, pointing in part to “negative commentary” after a Lululemon marketing campaign on the Great Wall of China that featured a Japanese taiko drum. Revenue in China – usually a bright spot – fell 2% in constant dollars, compared with a year-ago rise of 24%.
Revenue in Lululemon’s biggest market, the Americas, declined 8% after increasing 1% a year earlier, reflecting the brand’s intensifying struggle to rebuild relevance on top of inflationary pressures.
Sales of leggings – long at the core of Lululemon’s brand identity – declined about 20%. The company’s efforts to shift towards popular loose silhouettes have so far failed to offset sluggish demand for form-fitting pants.
“We expected a better response,” said Meghan Frank, Interim Co-CEO and CFO. “We know there is significant work ahead.”
ALL EYES ON NEW LEADER
Investor attention has turned to O’Neill, now that Lululemon has managed to settle a bruising proxy fight with founder Chip Wilson. They will look for signs that the Nike veteran can revive sales through product innovation and marketing after she takes the helm next week.
The retailer’s share of the athleisure market shrank 10 percentage points to 43.9% in August, from the previous year, according to data from M Science, while the share of Alo and Vuori grew 5.9 and 2.2 percentage points, respectively.
“Improving the product is only half the battle,” said eMarketer analyst Zak Stambor. “Lululemon also has to make consumers excited about the brand again.”
O’Neill, with four decades of turnaround experience in the athletic apparel industry, brings a strong track record of building direct-to-consumer businesses, said Third Bridge analyst Patrick Ricciardi. But reviving product innovation and design is a more urgent priority, he added.
Investors may not be immediately reassured by what they see. “Given the lead times in the business, it could take several years before new initiatives begin to resonate,” said Mari Shor, senior equities analyst at Columbia Threadneedle.
Lululemon now expects fiscal 2026 revenue to decline 5% to 7%, compared with its prior forecast of revenue remaining flat or declining up to 1%. It also pared down expectations for fiscal 2026 earnings per share to $9.48 to $9.73 from its prior forecast of $10.95 to $11.15.
The company reported second-quarter revenue of $2.42 billion. Analysts on average expected $2.46 billion, according to data compiled by LSEG.
Quarterly gross margin increased 200 basis points to 60.5% on the back of tariff refunds of $134.5 million and associated interest of $4.1 million.
