Lululemon has lowered its annual sales forecast and issued weak guidance for the current quarter, citing undisclosed 'headwinds.' The athletic apparel retailer now expects fiscal 2026 sales to range between $11 billion and $11.15 billion, down from a previous range of $11.35 billion to $11.50 billion. The company also cut its earnings guidance by more than $1 per share, now projecting earnings per share between $10.95 and $11.15 for the year. Shares dropped nearly 10% in extended trading following the report, marking a roughly 40% decline this year.
Core Facts & Developments
Lululemon's interim CEO, Meghan Frank, attributed the challenges to 'negative commentary in the media' and 'spikes of negative commentary in the media and on social channels.' The company's sales fell 2% in the three months ending May 3, driven by a 6% drop in the Americas region, which offset an 8% boost in international business. Profits fell 3% to £970 million for the quarter compared to the same period last year. The company also faced criticism from founder Chip Wilson, who called the brand a 'new low' and accused it of 'completely losing its way.' This followed the recall of its £88 'Get Low' leggings due to complaints about them being see-through. Additionally, the Texas attorney general announced a probe into potential 'forever chemicals' in Lululemon's clothes in April.
Deeper Dive & Context
Founder's Criticism and Product Issues
Lululemon has been grappling with negative press, including criticism from founder Chip Wilson, who publicly criticized the company in January. The brand also faced backlash over its 'Get Low' leggings, which were paused after customers complained they were see-through. Frank acknowledged that 'these stories have died down and subsided,' but the company has not yet seen a return to pre-disruption trends.
Regulatory Scrutiny
The Texas attorney general's probe into potential 'forever chemicals' in Lululemon's clothes adds another layer of scrutiny. These chemicals, which do not break down easily in nature, may be linked to health issues. The probe could have long-term implications for the company's reputation and operations.
Financial Performance and Market Reaction
Lululemon's shares have plummeted about 40% this year as of Thursday's close. The company's current quarter outlook is also weak, with expected sales between $2.45 billion and $2.48 billion, below expectations of $2.60 billion. Earnings per share are expected to be between $1.76 and $1.81, well below expectations of $2.68. Despite the challenges, Frank expressed confidence in the company's path forward, stating that the company is 'taking additional actions to reposition where needed and further strengthen our product engine.'
Leadership Transition
Frank, the company's chief financial officer, is steering the company before former Nike boss Heidi O'Neill takes over in September. The leadership transition comes at a critical time as the company navigates multiple challenges.