Pedestrians pass a Lululemon store in Toronto. The apparel maker now expects net revenue in the fiscal year ending Jan. 31, 2027, to decline by 5 to 7 per cent compared to last year.Sammy Kogan/The Globe and Mail
Lululemon Athletica Inc. LULU-Q has lowered forecasts for its financial performance in the year ahead for the second time in just three months, citing continuing “pressure” in the retailer’s largest markets, which continue to drag down sales and profits.
The Vancouver-based apparel maker said Thursday it now expects net revenue in fiscal 2026 (which ends Jan. 31, 2027) to decline by 5 to 7 per cent compared to last year, to roughly US$10.35-billion to $10.5-billion.
The company’s outlook has deteriorated significantly since its last quarterly report in June, when Lululemon also cut its forecasts. At the time, the company signalled that it expected revenue to be flat or down by roughly 1 per cent this year.
Shares fell about 18 per cent in post-market trading.
In recent weeks, while customers have reacted well to some newer styles, “the overall response to our product launches remains inconsistent, and we’ve continued to see pressure on the brand in both of our largest markets,” namely North America and mainland China, Meghan Frank, Lululemon’s chief financial officer and interim co-chief executive officer, said on a conference call Thursday to discuss the company’s second-quarter results. “Based on our assessment of these current trends, we have updated our guidance for the remainder of the year.”
Lululemon had initially expected sales to grow modestly this fiscal year, driven by international customers, while North American sales would decline only slightly. The latest move shows that initial efforts to address problems in the business – including by increasing marketing spending, improving the look of its stores and bringing products to shelves more quickly to stay on top of trends – have not yet borne fruit.
The Canadian pioneer of fashionable activewear has been fighting against a loss of relevance, particularly in North America, Lululemon’s largest and most important market. Competitors such as Alo, Vuori, Gymshark and many others in this increasingly crowded corner of the retail industry have been luring away customers who have grown tired of Lululemon’s offerings and sought out new styles.
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That has forced Lululemon to mark down prices to offload slow-selling items, something the company is hoping to address, working toward selling more products at full price.
But even longtime stalwart fashions are not performing as well as they used to. Leggings – once Lululemon’s bread-and-butter – have slowed down much more than expected, with sales down roughly 20 per cent in the second quarter in that category alone.
Part of the issue is that shoppers are turning away from skintight styles, in favour of wider-leg items. The brand’s Groove wide-leg pants, Align joggers and Dance Studio pants are expected to see improved sales momentum in the second half of the year, Ms. Frank said during the call. Lululemon is “aggressively” placing reorders for products that are working well, she added.
The company has also been cutting costs, and is now taking an “even more aggressive stance” on this issue, Ms. Frank said. That includes slashing travel budgets, professional fees and store labour hours, as well as slowing hiring. Executives are “taking a deeper look” at how to reduce expenses further, she said, while protecting the long-term health of the business and continuing to invest in product development and marketing.
The news underscores the urgency of the turnaround effort that the company’s new CEO, Nike Inc. veteran Heidi O’Neill, will be tasked with when she joins Lululemon next week.
The retailer, which operates 825 stores worldwide, reported its second-quarter net revenue was lower than expected at US$2.4-billion, a decline of 4 per cent compared to the same period last year, or 5 per cent when compared on a constant-currency basis. The results were dragged down by continued struggles in North America, while international net revenue increased slightly.
Comparable sales, an important metric that tracks sales results not influenced by store closings or new store openings, fell by 9 per cent, or 10 per cent on a constant-dollar basis, in the quarter ended Aug. 2. That fell significantly below analysts’ expectations of 5.8-per-cent comparable sales growth, according to consensus estimates compiled by S&P Capital IQ.
Net income fell to US$329.2-million or US$2.92 per share in the second quarter, compared to US$370.9-million or US$3.10 per share in the same period last year.