Lululemon's exiting conflict with its founder worsened its outlook. Shares plummeted 11%

Sportswear maker Lululemon lowered its outlook for the full fiscal year 2026 and shared weak expectations for the current quarter. It wasn't until late Ma that the troubled brand ended a protracted conflict with its founder, which investors took positively. But now, following the report, Lululemon's stock has plummeted, even though last quarter's results beat expectations on both revenue and earnings.

Lululemon cut its full-year revenue outlook to a range of $11 billion to $11.15 billion, which is much weaker than the expectations of analysts surveyed by LSEG, who were counting on revenue of $11.48 billion, CNBC noted. Lululemon also lowered its earnings forecast by more than $1 per share.

For the current quarter, the company expects revenue in the range of $2.45 billion to $2.475 billion, compared to analysts' expectations of $2.6 billion. Earnings guidance is $1.76 to $1.81 per share versus Wall Street's expected $2.68.

"We have recently been operating under pressures that have forced us to revise our full-year outlook. We have evaluated the business and are taking additional steps where necessary to adjust our strategy and strengthen our product line," said Lululemon interim CEO Maegan Frank, her words are quoted in the report. Frank did not specify which pressure factors she was referring to, CNBC noted.

The weak outlook adds pressure on Lululemon's management, which faces increasing competition from younger brands like Vuori and Alo, as well as product line challenges, Bloomberg emphasizes.

Lululemon shares collapsed by more than 11% in extended trading on Thursday after the publication of the reports. The securities finished the main trading on June 4 at $124.9, having lost 0.9% during the day. Since the beginning of the year, shares of the leggings maker had lost about 40% by Thursday's close of trading.

Although Lululemon's forecasts disappointed the market, results for the first quarter of fiscal 2026, which ended May 3, beat expectations on both revenue and earnings. Sales rose 4% to $2.47 billion versus the $2.43 billion expected, CNBC wrote. Earnings per share came in at $1.69, compared to Wall Street's forecast of $1.68. Net income decreased by 38% for the year. At the same time, comparable sales (counted by stores operating for more than a year) increased by 1%, exceeding analysts' expectations of 0.4%.

Lululemon's main problems are centered in the Americas, the company's largest and most important region. In the reporting quarter, comparable sales there declined by 5%, and this is the fifth consecutive quarter with negative dynamics, CNBC writes. In general, the company's business continues to grow, but this growth is mainly provided by China and other international markets, which still account for only a relatively small part of total revenue, the channel notes.

Weak sales remain a sore subject for Lululemon, but profitability has become an even bigger problem. The company has long benefited from the now repealed de minimis rule, which allowed small parcels to be sent duty-free from Canada to the United States. In addition, duties have put significant pressure on the business, CNBC writes.

Against the backdrop of declining traffic in stores and on the website, the company began to use discounts more actively to stimulate demand. This hit both profits and the reputation of the premium segment brand.

For the past six months, Lululemon has also been embroiled in a costly conflict with its founder Chip Wilson over shareholder votes that has distracted management from revitalizing the business, CNBC writes. The brand faced customer complaints about fabric quality and was forced to temporarily withdraw the Get Low line from sale. The story resonated on social media and became a cause for criticism from Wilson.

Over the past three months, Lululemon has made some progress in addressing its problems, CNBC writes. It has appointed former top Nike executive Heidi O'Neill as its new CEO and settled the conflict with Wilson. However, part of the market remains skeptical of O'Neill's appointment, primarily because she won't be able to start until September. While at Nike, O'Neill created the company's women's business line and turned it into a multi-billion dollar business. In addition, she was engaged in shortening the time to market for new products, an experience that should be useful to her as head of Lululemon, emphasizes CNBC.

Industry analysts questioned O'Neill's experience given her connection to Nike's mistakes, Bloomberg writes. Investors fear that fixing the backlog of problems will take longer than expected, CNBC writes.

Analysts on Wall Street are almost unanimously advising to hold Lululemon shares: the securities have 27 Hold ratings versus four Buy and Overweigh recommendations and one Sell recommendation, MarketWatch shows. The average target price of $167.6 implies a one-third increase from the closing level of June 4.

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