Lululemon cuts profit forecast, stock drops after 4% revenue decline

Shares of Lululemon Athletica plummeted on Friday after the athletic apparel brand cut its full-year profit forecast amid declining sales. The update came shortly after the company reported a 4% year-over-year drop in net revenue, bringing it to $2.4 billion for its second fiscal quarter, which ended on August 2.

This announcement has raised concerns as Lululemon grapples with shifting fashion trends that are steering consumers away from its signature leggings. Interim co-CEO Meghan Frank noted during a recent conference call that customers are increasingly seeking "away-from-body silhouettes," which suggests a significant shift in consumer preferences. Compounding this issue, Lululemon has seen its market share eroded by competitors like Alo Yoga, with leggings sales alone plummeting by roughly 20% during the quarter.

The company's operational struggles are evident, with comparable sales, which measure revenue from stores and e-commerce sites open for at least a year, falling by 9%. While Lululemon opened 11 new stores and closed two, its overall operating income dropped 13% to $453.7 million. The decline could have been steeper without $134.5 million in tariff refunds, and earnings per share decreased 6% to $2.92, bolstered only by stock buybacks.

Looking ahead, Lululemon forecasts a challenging third quarter, projecting a revenue decline of more than 10%, estimated at around $2.3 billion. The company has also revised its full-year earnings per share guidance down to $9.48 to $9.73, a significant drop from the previous estimate of $10.95 to $11.15. Incoming CEO Heidi O'Neill, formerly of Nike, is set to take over on September 8 and will face a tough road ahead as the company works to regain its footing in a competitive market.