Lululemon Athletica Inc. (NASDAQ: LULU) is having a rough Friday. The athletic apparel maker's stock is plunging after it cut its full-year outlook, and the company is pointing a finger at something you can't see in a store: negative chatter on social media.
Shares were down 18.49% at $99.26 in premarket trading, hitting a new 52-week low. That's a brutal wake-up call for investors who thought the yoga pants king was immune to the whims of online discourse.
So what happened? Revenue fell 4% year over year to $2.4 billion, and comparable sales dropped 10%. North America was particularly weak, with revenue down 8%, including an 8% decline in the U.S. and an 11% drop in Canada. China Mainland revenue actually rose 4% on a reported basis, but fell 2% in constant currency. Rest of World revenue increased 5%, or 6% in constant currency.
During the earnings call, management said negative commentary across media and social channels weighed on traffic and sales momentum. In China, spikes in negative commentary around the end of the first quarter and early in the second quarter hurt brand sentiment, leading to softer traffic in both stores and digital channels. Traffic remains the biggest driver of weakness in both China and North America, the company said.
Store sales declined 6%, and digital revenue also fell 6% to about $900 million, making up 39% of total revenue.
Margins Get a Refund Boost
Here's a twist: gross margin actually expanded 200 basis points to 60.5%, but that was largely thanks to IEIPA refunds, which contributed 560 basis points. Strip those out, and the picture gets uglier. Product margin fell 150 basis points, and tariffs (excluding refunds) weighed on gross margin by 160 basis points.
Efficiency initiatives added 100 basis points, but markdowns reduced margin by 70 basis points. Fixed-cost deleverage was a big drag, shaving 230 basis points, while foreign exchange provided a small 20-basis-point benefit.
The company ended the quarter with 825 stores, with global square footage up 11% after adding 41 net new stores since the second quarter of 2025. Cash totaled $1.4 billion, with nearly $600 million in available revolving credit. Inventory stood at $1.7 billion, down 1% in dollars and about 7% in units.
Lululemon also repurchased about 2.7 million shares at an average price of $120, leaving about $713 million under its authorization.
Leggings Slump, But New Styles Shine
Here's a number that might make you wince: women's leggings sales fell about 20%. That's a core product category, and it's hurting. But not all is lost. Away-from-body styles like Groove Wide Leg, Aligned Fold Over Jogger, Breezelee, and the updated Dance Studio Pant are performing well. The company is chasing about 20% more volume this year to respond faster to stronger-selling products.
The Define franchise remains strong, and Scuba and Steady State products featuring SuperLoft fabric are gaining traction. Men's revenue fell just 1%, with Metal Vent Tech tees and golf tops providing support. Accessories revenue dropped 13%, even though backpacks were strong.
On the community front, Lululemon's Summer series reached tens of thousands of guests across 70 cities. The returning SeaWheeze event attracted nearly 10,000 runners from 24 countries and about 14,000 festival attendees. Its virtual Strava challenge drew more than 85,000 participants from 120 countries. So people still love the brand, but are they buying?
Guidance Slashed
Lululemon lowered its fiscal 2026 GAAP EPS guidance to $9.48-$9.73 from $10.95-$11.15. That's below the analyst estimate of $10.96. Revenue is now expected to be $10.35 billion-$10.50 billion, down from the previous $11 billion-$11.15 billion range. Analysts were looking for $11.036 billion.
The new forecast implies a 5%-7% revenue decline from 2025. The company cited weaker sales trends and uneven performance from product launches. North America revenue is expected to decline at a low-double-digit rate, while China Mainland should grow at a high-single-digit rate, and Rest of World at a mid-single-digit rate.
Gross margin is expected to decline about 80 basis points, with a 130-basis-point benefit from tariff refunds and a 40-basis-point increase in markdowns. The company assumes tariffs of 10%-12.5% through September and 20% thereafter, with no additional IEIPA recovery assumed.
Lululemon now plans to open about 35 net new stores in 2026, down from 40 previously, and expects its pop-up store count to fall to about 40 by year-end from 65 at the end of last year.
Incoming CEO Heidi O'Neill is expected to join next week. She plans to conduct a deep review of the business, strategy, and action plan. That could mean more changes ahead.
Third Quarter Looks Ugly
The third-quarter outlook is even more sobering. Lululemon expects GAAP EPS of 93 cents to 98 cents, well below the analyst estimate of $2.43. Revenue is projected at $2.29 billion-$2.32 billion, versus the $2.533 billion consensus.
North America revenue is expected to decline at a mid-teens rate during the quarter, with the U.S. falling at a mid-teens rate and Canada performing even worse. China Mainland and Rest of World are each expected to grow 3%-5%.
Gross margin is expected to decline about 250 basis points, including a 60-basis-point increase in markdowns. Operating margin is projected at about 6.5%, down from 17%. That's a massive drop in profitability.
So what's the takeaway? Lululemon is facing a brand perception problem that's hitting where it hurts: traffic and sales. The company is trying to respond with new products and a new CEO, but the near-term picture is bleak. Investors are voting with their feet, and the stock is at a 52-week low. The question now is whether O'Neill can turn things around before the negativity spiral gets worse.
