Key facts
- Lululemon shares fell about 8% on Friday.
- The company cut its annual profit forecast.
- Sales weakness was attributed to negative commentary and product launches that failed to resonate.
- The company forecasts a drop in second-quarter sales for the first time since the pandemic.
- The stock has lost nearly two-thirds of its value over the past 12 months.
Lululemon Athletica shares fell about 8% on Friday after the athleisure wear maker cut its annual profit forecast, raising concerns about its turnaround pace and the challenges for incoming CEO Heidi O'Neill. The selloff reflects investor unease following a proxy battle with founder Chip Wilson and product missteps. Jefferies analysts noted significant and long-lasting damage under the prior CEO, calling for a full strategic reset. Lululemon attributed sales weakness partly to negative social media commentary linked to Wilson's criticism of leadership and product launches that failed to resonate. Wilson accused the brand of losing its 'cool' factor. Complaints about see-through leggings and issues with fit and design in recent launches have compounded negative sentiment. The company is increasing discounts on older inventory and revamping marketing. Its shares hit a seven-year low, having lost nearly two-thirds of their value in 12 months. Lululemon forecasts a second-quarter sales drop for the first time since the pandemic, leading at least nine brokerages to cut price targets. Newer competitors like Alo, Vuori, and Skims are impacting growth in the U.S., though China remains a bright spot. For the full year, profit is expected to slide up to 17%, with operating margin contracting 380 basis points to 16.1%, the lowest since 2006. Lululemon's valuation multiple has compressed to around 10 times forward earnings, significantly below Nike's 22.85 times and Adidas's 15.10 times.