LULU Stock Dips Below $100 After-Hours On Weak Sales And Soft Q3 Start

• The company’s second-quarter revenue fell 4% to $2.42 billion as same-store sales dropped 9%.
• Interim co-CEO and CFO Meghan Frank said the third quarter “has gotten off to a slow start.”
• For the full year, sales are now forecast at $10.35 billion to $10.50 billion, a decline of 5% to 7%.

Shares of Lululemon Athletica (LULU) dropped 18% after-hours on Thursday, falling below $100, a level not seen in regular trading since 2018, after the company reported falling sales in the second quarter and lowered its full-year forecast ahead of its new CEO taking charge.  

LULU’s Q2 Earnings Disappoint

The company’s second-quarter revenue fell 4% to $2.42 billion. Same-store sales dropped 9%. The Americas, still the company’s core market, declined 8%, with comparable sales down 12%. International sales rose 4%. China sales were up 4%, but comparable sales there slipped 2%.

Reported earnings were $2.92 a share compared with $3.10 a year earlier. That figure included $0.86 a share from tariff refunds and related interest, without which the results would have looked much weaker. Gross margin rose on paper due to refunds; operating profit still fell by 13%.

The company opened 9\nine net-new stores in the quarter, ending with 825, and repurchased $330 million of stock. Inventories were slightly lower.

Outlook Cut Again

Management now expects third-quarter sales of $2.29 billion to $2.32 billion, down 10% to 11%. Earnings are expected to be $0.93 to $0.98 per share. Interim co-CEO and CFO Meghan Frank said the third quarter “has gotten off to a slow start” and that August trends support a weaker outlook. For the second half, guidance assumes “a slower trend relative to Q2 in our North America business.”

For the full year, sales are forecast at $10.35 billion to $10.50 billion, a decline of 5% to 7%. Earnings are projected to be $9.48 to $9.73 per share, including the second-quarter tariff gain. That is well below the outlook issued after the first quarter, when the company already cut its plan to roughly flat sales.

North America sales are now expected to fall in the low double digits for the year. China is seen up in the high single digits. The company also cut planned store openings to about 35 from 40 and said third-quarter operating margin could drop to about 6.5% from 17% a year ago, as lower sales force more seasonal clearance.

Turnaround Still Waiting On A New CEO

Lululemon has spent the year trying to stabilize the brand. It ended a proxy fight with founder Chip Wilson in May, hired former Nike executive Heidi O’Neill as CEO, and has leaned on new products, increased marketing, and tighter cost controls. Interim co-CEOs Meghan Frank and André Maestrini said those efforts continue.

O’Neill starts next week. Frank said she expects O’Neill to “take a deep dive into the business, evaluating our strategy and current action plan.”

On the call, Frank said negative media and social commentary hurt traffic in the second quarter, and that new product launches had an “inconsistent” response. Legging sales fell about 20%, a drop the company has not fully offset with newer loose-fit styles. Asked whether the problem was traffic or product, she said the pressure is “predominantly” in traffic, with brand heat weaker in both North America and China.

Maestrini said China sales were hit by online criticism that intensified after a Great Wall event that drew backlash over a drum performance, as well as a softer Tmall 618 festival.

Frank called the new outlook “prudent” and said the brand still has a strong guest base.

How Did LULU Retail Traders React?

On Stocktwits, retail sentiment around LULU stock shifted from ‘extremely bullish' to ‘bearish’ over the past 24 hours, while message volume rose from ‘high’ to ‘extremely high’ levels.

LULU stock has fallen 41% year-to-date. 

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