Key facts
- Lululemon shares fell approximately 8% on Friday.
- The company cut its annual profit forecast.
- Lululemon cited negative media commentary and product launches that failed to resonate.
- The stock reached a seven-year low of $109.36.
- Heidi O'Neill is set to take over as CEO in September.
Lululemon Athletica shares declined approximately 8% on Friday after the company revised its annual profit forecast downward, fueling concerns about its turnaround strategy and the upcoming leadership transition. The stock reached a seven-year low of $109.36.
Analysts from Jefferies noted that brand momentum is waning and significant strategic resets are needed under the new CEO, Heidi O'Neill, who is set to take over in September. The company attributed sales weakness in the recent quarter partly to negative commentary on social media related to a proxy battle initiated by founder Chip Wilson, as well as product launches that did not resonate with its core customer base.
Wilson, a major shareholder, had criticized the brand for losing its "cool" factor and pursuing mass-market strategies. Stumbles in product innovation, including complaints about see-through leggings and issues with fit and design in recent launches, have further impacted sentiment. Lululemon is reportedly increasing discounts on older inventory and revamping marketing efforts.
The company forecast a drop in second-quarter sales for the first time since the pandemic. At least nine brokerages have lowered their price targets for the stock, with the median target falling to $149 from $205 three months ago. Growth has also been challenged by competitors like Alo, Vuori, and Skims, although China remains a strong market. For the full year, profit is now expected to decline up to 17%, with operating margins projected to contract significantly.
BNP Paribas analyst Laurent Vasilescu commented that with the CEO transition path established, the company's fundamentals are now under scrutiny and are not favorable. Lululemon's valuation multiple has compressed to roughly 10 times forward earnings, considerably lower than those of Nike and Adidas.