Lululemon cuts annual forecast again as US sales slump, shares drop 17 percent

Lululemon Athletica cut its full-year sales and profit forecasts for the second time in 2026, disclosing a quarter in which comparable sales fell 9 percent and its home North American market kept shrinking. The retailer's second-quarter earnings statement, filed with securities regulators after Thursday's closing bell, sent the stock down as much as 18 percent in the following session. Shares closed Friday at $100.61, off 17 percent from Thursday's close of $121.77, erasing roughly $3.7 billion of market value in a single trading day.

The selloff came four days before Heidi O'Neill, a former Nike executive hired in April to fix the company, is due to take over as chief executive, leaving Lululemon's outgoing interim leadership to explain a downturn that has now stretched across three consecutive quarters. The stock closed at an all-time high of $516.39 in December 2023; Friday's close left it down roughly 80 percent from that peak as growth in its core North American business has stalled.

A second guidance cut in five months

Net revenue for the quarter ended Aug. 2 came in at $2.4 billion, down 4 percent from a year earlier, or 5 percent excluding currency effects, according to the company's earnings release published on its investor site. Diluted earnings per share fell to $2.92 from $3.10 a year earlier, even after a one-time boost: Lululemon booked $134.5 million in refunded tariffs, plus $4.1 million in interest, from duties paid under the International Emergency Economic Powers Act, adding 86 cents to the quarter's per-share result.

The pain was concentrated at home. Revenue in the Americas region fell 8 percent and comparable sales there dropped 12 percent, while international revenue rose 4 percent even as comparable sales abroad slipped 3 percent. Executives said sales of leggings, long the company's signature category, slowed by more than they had expected. For the full year, Lululemon now expects revenue of $10.35 billion to $10.5 billion, down from a May forecast of $11 billion to $11.15 billion, and diluted earnings per share of $9.48 to $9.73, down from $10.95 to $11.15. Third-quarter revenue is projected to fall 10 to 11 percent from a year earlier. The company's inventory, at $1.7 billion, was down 1 percent from a year ago, suggesting the slowdown has not yet produced a glut of unsold stock, and cash on hand stood at $1.4 billion with $593.7 million still available under its revolving credit line.

Quality complaints and a leadership vacuum

The quarter capped a difficult stretch that predates the earnings report. Lululemon has had no permanent chief executive since Calvin McDonald's departure was announced late last year, leaving finance chief Meghan Frank and president André Maestrini running the company jointly on an interim basis. On the earnings call, Frank told analysts that "negative commentary" circulating on social media had weighed on store traffic during the quarter, on top of renewed customer complaints that some leggings, including its Heart Scatter and Get Low lines, were see-through — an issue the company had faced with earlier products.

Two other controversies have shadowed the brand this year. In the spring, Lululemon settled a monthslong proxy fight with founder Chip Wilson, who had sought board seats and criticized what he called ineffective oversight; the settlement added two of his nominees to the board. Separately, Texas Attorney General Ken Paxton opened a civil investigation in April into whether Lululemon's activewear contains PFAS, or "forever chemicals," despite marketing that emphasizes wellness. Lululemon has said it phased out PFAS from its products beginning in early 2024 and is cooperating with the inquiry, which remains open.

"Americans should not have to worry if they are being deceived when trying to make healthy choices for themselves and their families. I will not allow any corporation to sell harmful, toxic materials to consumers at a premium price under the guise of wellness and sustainability. If Lululemon has violated Texas law, it will be held accountable."

That statement, from the Texas attorney general's office announcing its investigation, has circulated widely among the customers and short-sellers who have questioned the brand's premium positioning this year.

Investors, shoppers and a new chief executive

Shareholders bore the immediate cost of Friday's decline, but the effects extend further. Lululemon still repurchased 2.7 million of its own shares for $330 million during the quarter, a bet on its own stock that looked poorly timed within days. Wholesale and mall landlords that lease space to the retailer's 825 company-operated stores, which grew by a net nine locations in the quarter, face a partner whose North American comparable sales are shrinking by double digits. Employees inherit a company that has now guided down twice in one fiscal year, a pattern analysts said raises fresh doubts about the pace of any turnaround, even as gross margin actually improved to 60.5 percent, up 200 basis points, on lower freight and product costs.

Frank said in the earnings statement that the company was "taking a prudent approach with our revised full-year outlook" while its teams focus on strengthening the product lineup and increasing marketing spending. Maestrini added that leadership remained "confident in our ability to take the right steps to strengthen our performance." Neither executive will be running the company much longer: O'Neill, who spent nearly two decades at Nike overseeing its consumer, product and brand divisions before leaving in 2024, was named Lululemon's next chief executive in April and is scheduled to formally start and join the board on Sept. 8, according to the company's announcement of her appointment.

Coverage of Friday's trading session noted that Lululemon was among the market's biggest single-day decliners, with one market recap describing the stock as one of the day's steepest fallers even as broader indexes were mixed on a stronger-than-expected August jobs report.

What comes next

O'Neill's mandate, as described by the company since her hiring, centers on rebuilding product credibility and brand momentum rather than cutting costs. She inherits a retailer with $1.4 billion in cash, a still-healthy 60-percent-plus gross margin, and a balance sheet that gives her room to invest, but also a North American customer base that has pulled back for three straight quarters and an open state investigation into product safety claims. The company's next scheduled disclosure will be its third-quarter results, expected in December, when investors will look for early signs of whether new leadership can arrest the decline or whether Friday's selloff marks a floor rather than a bottom.