Lululemon leggings sales fall 20% as new CEO arrives to a downgraded outlook
Analysts want incoming chief executive Heidi O'Neill to pause store expansion the moment she starts next week.
Lululemon's second-quarter leggings sales fell 20%, a decline the company's own numbers confirm and one that BNP Paribas analyst Laurent Vasilescu said made his team "do a double take". Leggings are thought to contribute about a third of Lululemon's overall revenue and carry its highest margins, so the drop lands directly on the bottom line.
The company now expects full-year net revenue to fall as much as 7%, to between $10.35 billion and $10.5 billion. That is a second downgrade: Lululemon had already cut guidance in June, from an expected 2% to 4% gain to a decline of as much as 1%. Chief financial officer Meghan Frank, currently serving as interim co-chief executive, told analysts third-quarter net revenue is expected to fall 10% to 11%, with pressure continuing in the Americas and China, the company's two largest markets.
A new chief executive with no runway
Heidi O'Neill, a three-decade Nike veteran, starts as Lululemon's chief executive next week. Emarketer principal analyst Sky Canaves said O'Neill will take the helm of a company "in a worse position than when she accepted the job". Jefferies analysts led by Randal Konik said she inherits negative traffic, a bloated cost base and no 2027 guidance until March.
Jefferies wants O'Neill to pause brick-and-mortar expansion immediately, tighten inventory, refocus on core merchandise, cut costs and simplify the brand's colour palette. William Blair analyst Sharon Zackfia said the leadership change itself adds uncertainty rather than resolving it. Frank said guest reaction to new activations and styles has been inconsistent, even as the company has worked to introduce new products and clear out older stock.
What settles the story now is what O'Neill does with store expansion plans once she is in the building, and whether Lululemon's next earnings call brings a specific plan rather than another guidance cut.
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