Lululemon Says Negative Social Media Buzz Hurt Traffic

Lululemon Athletica Inc. (NASDAQ:LULU) stock is trading sharply lower Friday after the company cut its full-year outlook. Lululemon cited weaker brand sentiment and traffic, particularly in North America and China.

Revenue fell 4% year over year to $2.4 billion and declined 5% on a constant-currency basis. Comparable sales dropped 10%.

North America revenue fell 8%. That included an 8% decline in the U.S. and an 11% drop in Canada.

China Mainland revenue rose 4% on a reported basis but fell 2% in constant currency. Rest of World revenue increased 5%, or 6% in constant currency.

During the earnings call, Lululemon said negative commentary across media and social channels weighed on traffic and sales momentum.

In China, management said spikes in negative commentary around the end of the first quarter and early in the second quarter hurt brand sentiment, contributing to softer traffic across both stores and digital channels. Management said traffic remains the biggest driver of weakness across both China and North America.

Store sales declined 6%. Digital revenue also fell 6% to about $900 million, accounting for 39% of total revenue.

Lululemon’s Margins Get Refund Boost

Gross margin expanded 200 basis points to 60.5%. IEIPA refunds contributed 560 basis points to the improvement.

However, product margin fell 150 basis points. Tariffs, excluding refunds, weighed on gross margin by 160 basis points.

Efficiency initiatives added 100 basis points. Meanwhile, markdowns reduced margin by 70 basis points. Fixed-cost deleverage weighed on gross margin by 230 basis points, while foreign exchange provided a 20-basis-point benefit.

Lululemon ended the quarter with 825 stores. Global square footage increased 11%, with 41 net new stores added since the second quarter of 2025.

Cash totaled $1.4 billion. The company also had nearly $600 million of available revolving-credit capacity.

Inventory stood at $1.7 billion, down 1% in dollars and about 7% in units.

Lululemon repurchased about 2.7 million shares at an average price of $120. About $713 million remained under its authorization.

Women’s Leggings Sales Tumble

Women’s leggings sales fell about 20%. However, away-from-body styles such as Groove Wide Leg, Aligned Fold Over Jogger, Breezelee and the updated Dance Studio Pant performed well.

Lululemon is chasing about 20% more volume this year to respond faster to stronger-selling products.

The Define franchise remained strong. Scuba and Steady State products featuring SuperLoft fabric also gained traction.

Men’s revenue fell 1%, with Metal Vent Tech tees and golf tops providing support. Accessories revenue dropped 13% despite strength in backpacks.

The company’s Summer series reached tens of thousands of guests across 70 cities. The returning SeaWheeze event attracted nearly 10,000 runners from 24 countries and about 14,000 festival attendees.

Its virtual Strava challenge drew more than 85,000 participants from 120 countries.

Lululemon Slashes 2026 Guidance

Lululemon lowered its fiscal 2026 GAAP EPS guidance to $9.48-$9.73 from $10.95-$11.15. The new range is also below the analyst estimate of $10.96.

The company cut its fiscal 2026 revenue outlook to $10.35 billion-$10.50 billion from $11 billion-$11.15 billion. Analysts expect $11.036 billion.

The new forecast implies a 5%-7% revenue decline from 2025. Lululemon cited weaker sales trends and uneven performance from product launches.

North America revenue is expected to decline at a low-double-digit rate. China Mainland revenue should grow at a high-single-digit rate, while Rest of World revenue is expected to increase at a mid-single-digit rate.

Gross margin is expected to decline about 80 basis points. The forecast includes a 130-basis-point benefit from tariff refunds and a 40-basis-point increase in markdowns.

Lululemon assumes tariffs of 10%-12.5% through September and 20% thereafter. It does not assume any additional IEIPA recovery.

The company now plans to open about 35 net new stores in 2026, down from 40 previously. It also plans about 35 store optimizations.

Lululemon expects its pop-up store count to fall to about 40 by year-end from 65 at the end of last year.

Incoming CEO Heidi O’Neill is expected to join next week. She plans to conduct a deep review of the business, strategy and action plan.

Third-Quarter Outlook Falls Well Short

Lululemon expects third-quarter GAAP EPS of 93 cents to 98 cents, well below the analyst estimate of $2.43.

Revenue is projected at $2.29 billion-$2.32 billion, compared with the $2.533 billion consensus estimate.

North America revenue is expected to decline at a mid-teens rate during the quarter. U.S. revenue is also expected to fall at a mid-teens rate, with Canada performing worse.

Meanwhile, China Mainland and Rest of World revenue are each expected to grow 3%-5%.

Gross margin is expected to decline about 250 basis points, including a 60-basis-point increase in markdowns. Operating margin is projected at about 6.5%, down from 17%.

LULU Price Action: Lululemon Athletica shares were down 18.49% at $99.26 during premarket trading on Friday. The stock is trading at a new 52-week low, according to Benzinga Pro data.

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