Lululemon Stock Falls 20% After Q2 Revenue, Leggings Slump

Lululemon shares fell about 20% in after-hours trading after the company reported fiscal second-quarter revenue of $2.42 billion, a 4% decline from a year earlier. Comparable sales dropped 9% and management reduced full-year revenue guidance to $10.35 billion–$10.5 billion. Executives reported that leggings sales declined roughly 20%.

Regional results showed Americas revenue down 8% while international revenue rose 4%. The company now expects annual revenue to be 5% to 7% below last year and has scaled back planned store openings to about 35 for the year, down from a prior target of 40.

Company leaders reported shoppers shifting to looser silhouettes. Management highlighted wide-leg pants and other away-from-body styles as gaining traction and plans to increase replenishment of top-selling items.

Analysts described the weakness as linked to product and merchandising rather than the balance sheet. Morningstar analyst David Swartz noted Lululemon remains profitable and well capitalized but faces slowing sales growth. He pointed to repeated colors and styles and increasing competition from brands such as Alo Yoga, Vuori and Skims.

Truist analyst Joseph Civello downgraded the stock to Sell in July and warned that headwinds could be more structural. Goldman Sachs analyst Brooke Roach cut her price target before the quarter and cited weaker card spending, slower store traffic, elevated promotions and moderating growth in China. Bernstein analyst Aneesha Sherman framed the question as whether the company is facing a short-term product issue that can be fixed within a year or a longer-lasting brand challenge.

Heidi O’Neill will assume the chief executive role on Sept. 8. O’Neill spent much of her career at Nike in senior roles focused on product and women’s apparel; company executives and some analysts said her product background is relevant to addressing merchandise gaps.

Management has lowered near-term expectations, reduced planned store openings and pointed to early sales gains in select categories. Investors responded with the share-price decline after the report.