Key facts
- Lululemon shares fell 9% in early trading.
- The company cut its annual profit forecast.
- Brand backlash and underwhelming product launches contributed to the forecast reduction.
- The company expects a drop in second-quarter sales.
- The stock's valuation multiple has compressed significantly.
Lululemon Athletica shares dropped 9% in early trading on Friday as the athleisure wear maker cut its annual profit forecast. This guidance reduction was attributed to brand backlash and underwhelming product launches, fueling concerns about the brand's recovery pace. The company anticipates a drop in second-quarter sales for the first time since the pandemic. Lululemon is currently navigating a proxy fight with its founder, Chip Wilson, who has criticized the company's leadership and loss of its 'cool' factor. Product innovation issues, including complaints about see-through leggings, have also impacted sentiment. The stock is on track to shed over $1.2 billion in market value on Friday, adding to a nearly two-thirds loss over the past 12 months. At approximately 10 times forward earnings, its valuation multiple has compressed significantly compared to competitors like Nike (22.85 times) and Adidas (15.10 times). At least nine brokerages have cut their price targets, with the median target falling to $149 from $205 three months ago. Incoming CEO Heidi O'Neill faces the challenge of reviving product innovation and restoring momentum in the U.S. market.