Key Takeaways:
- Comparable sales fell 9% in Q2, with revenue of $2.42 billion missing estimates
- Full-year revenue guidance cut to $10.35-10.5 billion, down 5% to 7%
- New CEO Heidi O'Neill takes the helm next week as turnaround struggles persist
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Lululemon plunges 15% as comparable sales fall 9% in Q2
Lululemon shares plunged 15% Thursday after the retailer reported a 9% drop in comparable sales and cut its full-year outlook for the second consecutive quarter.
"We are taking a prudent approach with our revised full-year outlook," Meghan Frank, interim co-CEO and chief financial officer, said. "Our teams remain focused on accelerating growth by strengthening our product offerings, increasing our marketing investments, and maintaining disciplined expense management."
Revenue fell 4% to $2.42 billion in the quarter ended Aug. 2, missing the $2.46 billion consensus compiled by LSEG. Comparable sales declined 9%, with the Americas down 12% and international down 3%. Diluted EPS was $2.92, down from $3.10 a year earlier, though the quarter included $0.86 per share from tariff refunds of $134.5 million. The consensus EPS estimate of $1.79 was not directly comparable due to the refunds.
*Not directly comparable; includes $0.86 from tariff refunds.
For fiscal 2026, Lululemon now expects revenue of $10.35 billion to $10.5 billion, a decline of 5% to 7%, versus prior guidance of $11 billion to $11.15 billion. Third-quarter revenue is guided to $2.29 billion to $2.32 billion, down 10% to 11% year over year, with EPS of 93 cents to 98 cents.
The company's struggles extend beyond the latest quarter. Lululemon reduced its guidance in the previous quarter as well, and founder Chip Wilson has publicly criticized the company's direction. New CEO Heidi O'Neill, a former Nike executive, officially takes the reins next week, inheriting a business that has lost relevance with core customers while facing intensifying competition in the athleisure market from brands including Alo Yoga and Vuori.
Gross margin expanded 200 basis points to 60.5%, helped by the tariff refunds, while operating margin contracted 190 basis points to 18.8%. The company repurchased 2.7 million shares for $330 million during the quarter and ended with 825 stores.
The guidance cut indicates management expects demand weakness to persist through the holiday season. Investors will watch O'Neill's first earnings call in December for signs of a concrete product and marketing strategy to reverse the decline.
This article is for informational purposes only and does not constitute investment advice.
