Lululemon's stock price plummeted nearly 18% on Friday, reaching an eight-year low, following a significant reduction in the company's full-year financial outlook. This downturn was primarily triggered by disappointing sales figures in the Americas and a broader struggle to regain shopper confidence after a series of product issues. The sharp decline occurred just days before Heidi O'Neill is scheduled to assume the role of CEO on Tuesday.
The company now projects fiscal 2026 revenue to decrease by 5% to 7%, a stark contrast to its previous projection of $12.5 billion in sales for the year. In the second quarter, Lululemon reported a 4% drop in revenue, reaching $2.42 billion, with comparable sales falling 9% globally. The Americas region experienced a more severe decline, with revenue down 8% and comparable sales dropping 12%.
Lululemon has revised its fiscal 2026 revenue forecast to between $10.35 billion and $10.50 billion, a decrease from the $11 billion to $11.15 billion anticipated just three months prior. The company also lowered its full-year earnings per share forecast to a range of $9.48 to $9.73, down from the previous estimate of $10.95 to $11.15.
Further financial pressure is anticipated in the third quarter, with guidance indicating a revenue decline of 10% to 11%. This forecast suggests that O'Neill, who will succeed Calvin McDonald, faces significant challenges including product missteps, reduced store productivity, and increased competition from rivals like Alo Yoga and Vuori.
Product Challenges and Market Share
Lululemon's comparable sales in North America decreased by 3% in the second quarter of fiscal 2024. This period coincided with the withdrawal of the $98 Breezethrough leggings due to customer complaints regarding their fit and design. By the second quarter of fiscal 2025, Americas comparable sales had deteriorated further, resulting in a 12% decline. An additional product issue arose in January when the company temporarily halted online sales of a new line following customer feedback, including concerns about fabric transparency.
These product stumbles have been particularly impactful as women's apparel constitutes 63% of Lululemon's fiscal 2025 revenue. Sales of leggings, a core product category, reportedly fell approximately 20% in the latest quarter, as consumers shifted towards looser-fitting styles. Competitors Alo Yoga and Vuori have been gaining market share at Lululemon's expense. Data from M Science indicates that Lululemon's share of the athleisure market decreased by 10 percentage points to 43.9% in August, while Alo Yoga and Vuori saw gains of 5.9 and 2.2 percentage points, respectively.
Expansion and Sales Performance
The company's operational expansion also appears misaligned with current sales performance. Lululemon ended fiscal 2025 with 811 stores, an increase from 767 a year earlier, with square footage growing by 11%. However, revenue from company-operated stores rose by only 1%, and sales per square foot declined by 9.4%, falling to $1,426 from $1,574.
