Lululemon shares fell 15 percent on Thursday after the retailer delivered its second consecutive quarter of declining sales and lowered its full-year targets, a move that strips roughly $600 million from the top-line forecast issued just three months ago. The company reported a 4 percent revenue drop and a 9 percent comparable-sales decline for the second fiscal quarter, while gross margin expanded 5.6 percentage points almost entirely on a $134.5 million tariff refund that masked a 1 percent gross-profit decline.
The numbers that matter
Revenue came in at $2.42 billion against a $2.46 billion consensus, and net income slipped to $329.2 million, or $2.92 a share, from $370.9 million, or $3.10 a share, a year earlier. The reported earnings per share figure is not clearly comparable to the $1.79 analysts had modeled, leaving the headline beat impossible to verify. What is verifiable is the guidance: third-quarter revenue of $2.29 billion to $2.32 billion implies a 10 to 11 percent year-over-year decline, and the full-year range of $10.35 billion to $10.5 billion represents a 5 to 7 percent drop versus the prior $11 billion to $11.15 billion outlook. Full-year earnings are now seen at $9.48 to $9.73 per share, down from $10.95 to $11.15.
The social media explanation
Interim chief executive Meghan Frank attributed part of the weakness to "negative commentary" on social media and a "greater-than-expected" slowdown in core categories such as leggings. She also acknowledged that "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." The company is tightening inventory and pushing new styles, but Frank conceded "there is much more work to be done."
The transition ahead
Heidi O'Neill takes over as chief executive next week, inheriting a business that has now guided down twice in a row while facing public criticism from founder Chip Wilson. The new forecast includes the benefit of tariff refunds, meaning the underlying trajectory is weaker than the headline ranges suggest. Investors will watch whether O'Neill can stabilize the core assortment before the holiday quarter, or whether the brand's relevance problem requires something more structural than inventory discipline.