"Investors got 'dog face down': Lululemon shares collapse after report

Lululemon Athletica, the North American sportswear maker, beat second-quarter profit forecasts by a margin. But after the publication of the financial report quotes of the company collapsed by 16% - due to problems with sales in a key market and repeated lowering of the forecast for 2025.

Lululemon reported last quarter earnings of $3.1 per share, compared to the FactSet consensus estimate of $2.86. Revenue rose 7% year-over-year to $2.53 billion, slightly behind analysts' expectations ($2.54 billion). But the growth of comparable sales (excluding new stores) by only 1% year-on-year with a forecast of 3.7% disappointed Wall Street, writes Barron's.

The weak result was driven by a 4% decline in comparable sales in Lululemon's U.S. business segment, which is a key source of revenue for it. The company has experienced demand problems in North America for several consecutive quarters. This is due to both slowing growth in the athleisure casual apparel industry and increased competition. Other regions performed better, with sales in China up 17% and the rest of the world up 12%. However, this was not enough to offset the loss of revenue in the US, Barron's notes.

Lululemon had already lowered its full-year forecast in June, but did so again on Sept. 4. The company now expects revenue between $10.85 billion and $11 billion. The previous estimate called for sales of $11.15-11.3 billion. The midpoint of the new range, $10.93 billion, was below the consensus forecast ($11.2 billion), Barron's reports. Lululemon also revised its earnings expectations downward to reflect both slowing sales and the larger-than-expected impact of duties on U.S. imports. As of 2024, the company made 40 percent of its products in Vietnam and bought 28 percent of its fabrics from mainland China, the New York Post recalls.

The company's shares collapsed 16% in the New York postmarket.

"Investors were expecting a 'sun salutation' and got more of a 'downward facing dog,'" Zacks Investment Research stock strategist David Bartosiak told Barron's, referring to the yoga practices with which Lululemon products are closely associated. - "Now the whole question is whether the brand can bend but not break under the pressure of duties and weakness in the home market,'' .

While Lululemon used to stand out because of its unique fabrics and proprietary technology, now items of comparable quality can be found everywhere from new luxury brands like Alo Yoga to mass-market brands, explains Reuters, citing eMarketer analyst Susie Davidkhanian. The widespread distribution of copies indicates a weakening of the barriers that keep Lululemon from competitors, Davidkhanian emphasized.

Lululemon is wrong to hope for accelerating growth in 2026, Jefferies managing director Randy Connick told CNBC. His new target of $150 per share for the company was the most pessimistic on Wall Street. The analyst believes the company's problems are far more serious than its management admits, and its stock won't bottom out until management presents the market with a realistic, much lower earnings forecast. In his view, the company has become a "victim of its own success": its past financial metrics, such as revenue per square foot and operating margins, have been abnormally high and now, declining, could collapse completely. Connick argues that opening new stores amid falling sales creates a "death spiral" - high fixed costs eat away at margins.

Shortly before the release of Lululemon's second-quarter report, Jefferies and several other analysts revised their target prices on its shares, Investing.com recalls. Needham lowered the target from $317 to $238 a share, citing risks of margin pressure due to rising markdowns. BTIG lowered the target from $405 to $375, expressing concern about Lululemon's slow growth in the US. Morgan Stanley lowered the target from $280 to $223, also citing weak sales in the Americas. BofA Securities adjusted its target price from $370 to $300 amid macroeconomic risks, but still sees the stock as attractive.

This article was AI-translated and verified by a human editor