After disappointing reports: Lululemon stock plunges by more than 18%
The sports and leisure fashion brand has significantly lowered its forecasts for the rest of the year and is showing a sharp decline in revenue, as young brands that manage to attract the younger audience are strengthening.
Lululemon stock crashed by more than 18% in after-hours trading after the company released disappointing financial results for the second quarter and significantly lowered its forecast for the rest of the year. The sharp decline brought the stock price below the $100 threshold, after it finished the regular trading day at a price of $121.77.
According to a Bizportal report, the decline is driven by significant weakness in the company's business operations. Lululemon's revenue in the second quarter totaled $2.42 billion, a decrease of about 4% compared to the same period last year, and same-store sales data also showed a negative picture, with a 9% decline worldwide.
Apparently, the earnings per share figure might look positive, as the company reported $2.92 per share, above forecasts. However, the number was affected by a one-time refund related to tariffs and interest, and therefore does not necessarily reflect an improvement in the company's ongoing operations.
The crisis is reflected even more significantly in the updated forecast. Lululemon now expects annual revenue in the range of $10.35 to $10.5 billion, reflecting a decline of 5% to 7%. This is a sharp deterioration compared to the forecast published by the company in June, when it expected revenue stability or a decline of up to 1% only.
The forecast for earnings per share was also cut. The company now estimates that annual profit will be $9.48 to $9.73 per share, compared to a previous forecast of $10.95 to $11.15.
One of the main areas of weakness is the American market, and especially North America, a region that constitutes the bulk of Lululemon's operations. Revenue in the region fell by 8%, while same-store sales plummeted by 12%, a figure that illustrates the intensity of the pressure the brand is under in its home market.
Alongside the decline in demand, the company is also dealing with a change in the competitive landscape. Brands like Alo Yoga and Vuori have managed to strengthen in recent years and attract young audiences, while eating into the market share that had been associated for years with Lululemon.
The latest data raises questions about the company's status in the sports and leisure fashion industry. The brand, which was previously considered one of the strongest and most sought-after names in the field, is now required to deal simultaneously with a decline in sales, weaker forecasts, and increasing competition from young brands.
