By Anuja Bharat Mistry and Danielle Kaye
June 4 (Reuters) – Lululemon Athletica cut its annual profit forecast and projected second-quarter earnings well below Wall Street estimates on Thursday, as the athletic apparel maker’s products failed to win back shoppers in its key U.S. market.
Shares of the company dropped 11% in extended trading, after it said it expects second-quarter gross margin to decrease about 410 basis points, driven in part by higher tariff costs and investments.
Vancouver-based Lululemon, known for its pricey leggings and athleisure wear, has joined peers in bearing the brunt of muted spending on higher-margin items amid stubborn inflation pressures.
But the broader pullback comes as the retailer faces a leadership transition and waning brand appeal in North America after design missteps and a lack of freshness.
Investors are on edge about whether Lululemon’s incoming CEO Heidi O’Neill can reignite sales once she assumes the role in September. The company has ended a months-long proxy fight with founder Chip Wilson in May.
Lululemon also faces mounting competition from upstart brands such as Alo Yoga and Vuori, which are expanding their retail presence in the U.S., as well as from players such as Maia Active and Xexymix in China.
First-quarter revenue in the U.S. — its biggest market — fell 4% in constant dollars, compared with a 2% increase a year ago. Quarterly revenue in the China market, however, rose 23% in constant dollars.
“The company has a strong brand, but an overstretched one, and we fear ongoing revenue declines in North America as the business needs to re-elevate its offering and brand story,” said Guggenheim Securities analyst Simeon Siegel.
PRODUCT HYPE REMAINS MUTED
Lululemon’s two interim CEOs said they are focused on getting new products to shoppers more quickly, having reduced product development timelines from 18-24 months to 15-16 months.
But product launches in the first quarter failed to generate as much excitement as the company was hoping, Meghan Frank, interim CEO and chief financial officer, said on a post-earnings call with analysts.
Its yoga campaign, for example, “hasn’t had the expected halo effect on other areas of our assortment,” Frank said. She also pointed to “negative commentary” about the company as a headwind in the second quarter.
The company forecasts second-quarter profit per share between $1.76 and $1.81, compared with analysts’ average estimate of $2.68, according to data compiled by LSEG.
The retailer expects fiscal 2026 revenue to be flat to decline 1%, compared with its prior forecast of a 2% to 4% increase.
It also expects full-year earnings per share to be between $10.95 and $11.15, versus $12.10 to $12.30 projected earlier.
(Reporting by Anuja Bharat Mistry in Bengaluru and Danielle Kaye in New York; Editing by Shilpi Majumdar)
By Anuja Bharat Mistry and Danielle Kaye | Reuters | © Copyright Thomson Reuters 2026.
