lululemon‘s troubles are not over yet.
The sports apparel retailer on Thursday lowered its full-year outlook and issued a weak current-quarter outlook, with interim CEO Megan Frank blaming “negative media commentary” and recent product launches for failing to wow shoppers.
“We experienced a sharp increase in negative comments about our brand in the media and social channels, impacting our traffic and overall sales,” Frank told analysts on an earnings call, explaining the reason for the weak performance at the end of the first quarter. “And second, not all of our product launches have met expectations. We’ve had some successful launches so far this year, but as the second quarter began, we saw some products that didn’t get the guest response we expected.”
When asked what specific negative comments led to the drop in sales, Frank pointed to the proxy battle between Lululemon and founder Chip Wilson, and was outspoken in criticizing the brand and “questioning the composition” of some of its products.
“Those stories are disappearing and subsided,” Frank said. “But we have yet to see a return to pre-collapse trends.”
He said the company is “not sitting still” and is “moving quickly to make the necessary adjustments to re-accelerate momentum, particularly in North America.”
The company’s stock fell 11% in extended trading following the report. Lululemon stock has fallen about 40% since the beginning of the year as of Thursday’s close.
Lululemon now expects fiscal 2026 sales to be between $11 billion and $11.15 billion, down from the previous range of $11.35 billion to $11.5 billion. Analysts had expected full-year sales of $11.48 billion, according to LSEG.
Lululemon also lowered its earnings outlook by more than $1 per share. The company now expects full-year earnings per share to be in the range of $10.95 to $11.15, down from the previous range of $12.10 to $12.30. Analysts had expected $12.30 per share, according to LSEG.
This quarter doesn’t look very good. Lululemon’s sales are expected to be between $2.45 billion and $2.48 billion, lower than the $2.6 billion expected, according to LSEG. LSEG said it expects earnings per share to be between $1.76 and $1.81, well below expectations of $2.68.
Lululemon’s results came in below expectations, but first-quarter sales and bottom line beat expectations, even though expectations have been lowered significantly since the retailer last reported earnings. Here’s how the company performed compared to Wall Street expectations, based on a survey of analysts by LSEG:
Earnings per share: $1.69 vs. $1.68 expected Revenue: $2.47 billion vs. $2.43 billion expected
The company reported net income of $195 million, or $1.69 per share, for the three months ended May 3, compared with $314.6 million, or $2.60 per share, in the year-ago period.
Sales were $2.47 billion, an increase of approximately 4% from $2.37 billion in the same period last year. Comparable sales rose 1%, beating expectations for a 0.4% increase, LSEG said.
Lululemon’s woes are concentrated in its largest and most important region, the Americas. During the quarter, comparable sales in the market decreased by 5%, marking the fifth consecutive quarter of decline. Lululemon’s overall business is still growing, with expansion primarily in China and other international regions, which account for a portion of its overall revenue.
During the quarter, international sales increased 22% and international comparable sales increased 13%.
Lululemon said it expects the decline in North America to continue. The company expects sales to decline in the low double digits this quarter and in the low single digits for the full year. Meanwhile, sales in China are expected to increase by a mid- to high-teens percentage this quarter and about 20% for the full year.
Sales are hurting for Lululemon, but profitability is an even bigger challenge. According to StreetAccount, gross margin for the quarter fell 4.1 percentage points to 54.2%, below expectations of 54.6%. The company, which was a big beneficiary of the now-defunct de minimis exemption that allowed packages to be shipped duty-free across the Canadian border into the United States, has also been hit hard by the tariffs.
With fewer people visiting its stores and website to buy workout wear, the company has turned to discounts to boost sales, hurting its bottom line and its reputation as a premium brand.
The company also spent the past six months engaged in a dramatic proxy fight with its founders, which cost a lot of money and diverted management’s attention away from restructuring.
On top of all these struggles, Lululemon, like everyone else, also had to deal with new conflicts in the Middle East and rising gas prices that were also increasing costs.
The company said the decline in gross profit margin in the quarter was primarily due to tariffs, which impacted margin by 2.8 percentage points, while discounting increased it by 0.4 percentage points. The company expects its gross margin to decline by an additional 4.1 percentage points in the current quarter due to higher tariffs and store investments. The rate of decline is expected to increase by 0.5 percentage point.
“We expect second-half price reductions to continue to improve modestly year-on-year,” Frank said. “Additional seasonal clearance will be required as top-line trends are expected to slow in the second quarter.”
Lululemon expects profitability challenges to ease in the second half of the year. For the full year, the company expects gross profit margin to decline by 0.9 percentage points and price reductions to be flat to slightly higher. Mr. Frank said that on a full-year basis, Lululemon expects to be able to offset almost all of the impact of the tariffs.
In the three months since Lululemon last reported earnings, it has made some progress in addressing some of its challenges. The company has hired longtime Nike veteran Heidi O’Neal as its next CEO, ending a proxy fight with its founder. Investors will be relieved that Lululemon’s management is focused on a proxy fight and doesn’t have to spend money, but some are uncomfortable with O’Neal’s appointment, especially since he won’t be starting until September.
Under the leadership of two interim CEOs, Chief Financial Officer Frank and Chief Commercial Officer Andre Maestrini, Lululemon has worked to reposition its product offerings and address domestic growth challenges. But the real change in strategy won’t happen until O’Neill takes over.
Given how long it takes Lululemon to go from idea to product, there are concerns that it may take longer than expected to resolve the challenges weighing on its business.
Still, Lululemon insists O’Neal is qualified for the job. During her time at Nike, O’Neal established and built Nike’s women’s business, growing it into a multi-billion dollar franchise. She also worked on reducing product lead times, and that experience will serve her well as Lululemon’s chief executive officer. Frank said the company has already achieved success in reducing lead times from 18 to 24 months to 15 to 16 months, and is working to further reduce lead times to 12 to 14 months.
