Lululemon is facing a challenging shift in its business trajectory.
The company’s shares dropped by 17% on Friday, reaching an eight-year low as disappointing sales in the Americas led to a downward revision of its full-year expectations.
This news came just as incoming CEO Heidi O’Neill was preparing to step into her role next Tuesday.
The stock ended the day at $100.61, having reached a low of $97.99, resulting in a loss of billions in market value for the retailer.
Lululemon has now revised its revenue expectations for fiscal 2026 down to a 5% to 7% decline, a significant downshift from its earlier target of $12.5 billion in sales for this year.
A disappointing second quarter saw revenues fall 4% to $2.42 billion, while comparable sales dropped by 9% globally.
The situation was even worse in the Americas, where revenue fell by 8% and comparable sales decreased by 12%. The athletic apparel company is struggling to regain customer interest following several product missteps.
Lululemon now forecasts its fiscal 2026 revenue to be between $10.35 billion and $10.50 billion, which is a sharp drop from $11 billion to $11.15 billion just three months earlier.
The Vancouver-based company also lowered its earnings guidance from a range of $10.95 to $11.15 per share to $9.48 to $9.73 per share.
The difficult numbers forecast a continued rough patch, with third-quarter projections anticipating revenue to decline by 10% to 11%.
This challenging scenario will be O’Neill’s first test as she navigates issues such as product errors, declining store productivity, and growing competition. She steps in to succeed Calvin McDonald, who left the company amid significant pressure at the end of January.
In the second quarter of fiscal 2024, Lululemon’s comparable sales in North America fell by 3%, coinciding with the recall of its $98 Breezethrough leggings after customers raised fit and design issues.
By the second quarter of fiscal 2025, comparable sales had further declined by 4%, and now, they have dropped by 12%.
A further issue arose in January when the company paused online sales of a new line following customer feedback about the fabric’s sheerness.
These challenges have been particularly impactful as women’s apparel represents 63% of Lululemon’s revenue for fiscal 2025.
Sales of leggings alone fell by about 20% in the most recent quarter as consumers opted for looser styles instead.
Lululemon’s rivals, Alo Yoga and Vuori, have made gains in market share at the expense of Lululemon.
According to M Science data, Lululemon’s share of the athleisure market fell to 43.9% in August, a drop of 10 percentage points, while Alo Yoga increased by 5.9 points and Vuori gained 2.2 points.
The company’s growth strategy seems to have been based on expectations that now appear overly optimistic.
At the end of fiscal 2025, Lululemon had 811 stores, a rise from 767 the previous year, with square footage expanding by 11%. However, revenue from these stores increased only 1%, and sales per square foot fell by 9.4%, dropping to $1,426 from $1,574.
