Lululemon Athletica lowered its sales and profit outlook on June 4 after executives told investors that negative publicity and disappointing product launches hurt customer demand, particularly in North America.
Speaking during the company’s quarterly earnings call, interim co-CEO and Chief Financial Officer Meghan Frank said Lululemon experienced periods of heightened negative commentary across traditional media and social media platforms, which contributed to weaker store traffic and softer sales performance. She also acknowledged that several recent product introductions failed to generate the customer enthusiasm the company had expected.
“We saw spikes of negative commentary around the brand,” Frank told analysts, adding that some new merchandise simply did not resonate with shoppers as planned.
One source of that publicity was a public dispute with Chip Wilson, the company’s founder and one of its largest shareholders. Wilson had spent months criticizing management and the company’s direction during a proxy battle. The dispute ended in late May when Lululemon agreed to add three new directors to its board and Wilson agreed to refrain from publicly criticizing the company for approximately 18 months.
Frank said media attention surrounding the conflict has since subsided.
The financial impact, however, remains significant.
Lululemon now expects full-year earnings of $10.95 to $11.15 per share, down from its previous forecast of $12.10 to $12.30 per share. The revised outlook falls below analyst expectations of approximately $12.30 per share, according to LSEG.
The company also trimmed its annual revenue forecast to approximately $11 billion to $11.15 billion.
For the current quarter, Lululemon expects revenue of $2.45 billion to $2.48 billion, below Wall Street forecasts of roughly $2.60 billion. Earnings are projected at $1.76 to $1.81 per share, well below analyst expectations of $2.68 per share.
Executives now expect sales to decline 2% to 3% during the current quarter and to remain flat or slightly lower for the full fiscal year, reversing earlier projections that called for modest growth.
The weakness is concentrated in the company’s largest market.
While total first-quarter revenue increased 4% to $2.5 billion, sales in the Americas declined. Net income fell 38% year-over-year to $195 million, pressured by lower margins and higher tariff-related costs.
International markets provided a brighter spot. Lululemon reported strong growth outside North America, demonstrating continued demand for the brand in overseas markets.
To address slowing performance, the company is making significant changes to its product assortment.
Executives said Lululemon has reduced the number of products carried in North American stores by approximately 15%, reorganized merchandise between performance and lifestyle categories, and reduced reliance on markdowns. Select stores are also testing additional assortment changes and localized merchandising strategies.
Management described the effort as a broader attempt to strengthen what it calls the company’s “product engine” and restore momentum in its core business.
The company is also navigating a leadership transition.
Frank has served as interim CEO since Calvin McDonald stepped down earlier this year. She is expected to hand leadership duties to incoming CEO Heidi O’Neill in September. O’Neill spent 27 years at Nike, where she held several senior leadership roles.
The transition means Lululemon is attempting to revive growth while simultaneously preparing for a new chief executive to take control of the company.
Investors reacted swiftly to the weaker outlook. Following the earnings announcement, Lululemon shares fell approximately 11% in after-hours trading.
For a company once known for selling premium athletic apparel at full price with little need for promotions, the market’s concern is clear. Investors are questioning whether Lululemon can quickly regain momentum in North America while introducing products that reconnect with consumers.
For shoppers, the company’s efforts could translate into more promotions, markdowns, and merchandise changes in the months ahead as Lululemon works to restore growth and rebuild confidence in its brand.
JBizNews Desk — Business
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