Pedestrians pass a Lululemon store in downtown Toronto in May.Sammy Kogan/The Globe and Mail
Lululemon Athletica Inc. LULU-Q has lowered its forecast for the year ahead, saying it now expects revenue to be flat or fall slightly, as the embattled athleisure giant faces “headwinds” that are hurting sales.
The Vancouver-based apparel retailer on Thursday said it now expects its net revenue in fiscal 2026 (which ends Jan. 31, 2027) to be roughly US$11-billion to US$11.2-billion, which would represent declines of 0 to 1 per cent compared to the prior year.
While Lululemon had a “solid” start to the year, interim co-chief executive officer Meghan Frank wrote in a statement, more recently the company has “been navigating headwinds that have led us to adjust our outlook for the full year.”
On a call to discuss Lululemon’s first-quarter earnings, Ms. Frank referred to product launches that did not meet the company’s expectations, as well as negative commentary in the media and on social media that hurt its image and sales.
“I want to emphasize that we are not sitting still, and we are moving with urgency to make the necessary adjustments to reaccelerate momentum, particularly in North America,” she said on the call, adding that the leadership team is working to strengthen Lululemon’s product designs, to cut the time it takes to bring new products to shelves and to improve performance.
The negativity stemmed partly from a high-profile proxy fight, Ms. Frank said. The battle was launched late last year by the company’s founder, Chip Wilson, who sought to overhaul Lululemon’s board of directors. Mr. Wilson blamed Lululemon’s sagging performance on leaders who had failed to uphold the vision of the brand and to keep up with trends.
That conflict was recently resolved after Lululemon agreed to appoint two of the three nominees Mr. Wilson had pushed to be added to the board.
The company was also hurt by questions about the compositon of its products, which came in mid-April when Lululemon was forced to pause sales of its “Get Low” leggings after customers complained that they were see-through. (The leggings are back on sale but are advertised with a recommendation to buy a larger size and to wear “skin-tone, seamless underwear” for best results.)
The commentary affected the brand’s performance in the United States and China, Ms. Frank said.
“I also want to reiterate that product quality is foundational to our brand, and we will continue to lean into this principle and enduring strength of Lululemon,” she said.
The news adds to the urgent problems that the company’s new CEO, long-time Nike Inc. executive Heidi O’Neill, will have to address when she joins Lululemon in September.
Lululemon had previously signalled that in the coming fiscal year, it expected revenue growth of 2 to 4 per cent, driven by its international markets, as North American sales will continue to drop slightly.
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In recent years, the company that helped to invent the athleisure category has been seriously stretched. While sales have been growing internationally, its performance has slipped in North America, its biggest market.
In its first quarter ended May 3, Lululemon reported that comparable sales – an important metric that tracks sales growth in existing stores, rather than growth from opening new locations – increased by 8 per cent internationally on a constant-dollar basis, but fell by 6 per cent in North America on a constant-dollar basis.
Overall, the company’s net revenue increased to US$2.5-billion, up 4 per cent in the quarter compared to the same period last year.
Net income fell significantly to US$195-million, or US$1.69 per share, compared to US$314.6-million, or US$2.61 per share, in the first quarter last year.
During Thursday’s call, co-CEO André Maestrini emphasized that Lululemon sold fewer items on discount in North America in the first quarter than it had in previous months, which he said was an encouraging sign for the business in the all-important market where it has struggled to improve. The reduced markdowns helped to create a “more premium shopping experience” in the stores, he said.
Lululemon has also reduced its product-development timelines, from 18 to 24 months previously, to 15 to 16 months currently. The company is working to further cut those times to 12 to 14 months.
Lululemon also plans to increase its spending on marketing by 10 to 15 per cent this year, to improve the brand’s image and win back customers.
The “brand noise” that recently affected Lululemon has also begun to dissipate, Mr. Maestrini said on the call.
But recent marketing campaigns failed to meet expectations, and the company’s work to gain traction with customers who have fallen away from the brand will take time to take effect, he said.