Shares of Lululemon Athletica fell about 18 per cent in premarket trading on Friday after the sportswear maker cut its full-year forecast for a second time, underscoring the string of challenges that await incoming CEO Heidi O’Neill.
Known for its high-priced stretchy pants and athletic tops, Lululemon has struggled to contain shrinking margins, worsening brand perception and market-share loss to new rivals. O’Neill, who takes over on September 8, will have to chart a recovery for a company hit by merchandising missteps, an over-reliance on promotions and intensifying competition.
The firm’s shares were trading at about US$99 before the bell, and if losses hold, Lululemon would lose more than US$2.5 billion in market value, deepening the stock’s year-to-date decline to about 41.5 per cent.
“In our view, last night’s decidedly downbeat quarterly announcement is now apt to unnerve meaningfully even longer-term-oriented investors examining the name,” said Brian Nagel, analyst at Oppenheimer Research, in a note.
Investors should await an initial game plan from O’Neill before considering a more constructive stance on shares, he added.
O’Neill, a former Nike executive, will be tasked with reviving demand in North America, Lululemon’s largest market, and restoring growth.
Revenue in the Americas fell eight per cent from a year earlier in the second quarter, compared with a one per cent increase the previous year, as the firm struggled to reignite demand amid slow consumer spending impacted by inflationary pressures.
Sales could deteriorate further in the second half, Morgan Stanley said, with limited visibility on when demand might recover, raising the risk of continued pressure on margins.
Following the results, at least 12 brokerages lowered their price objectives for the shares, with Piper Sandler setting the Street-low target of US$80, according to data compiled by LSEG.
Lululemon’s shares trade at about 11.50 times forward earnings, compared with 20.76 for peers Nike and 13.41 for Adidas.
Reporting by Juveria Tabassum and Kanishka Ajmera in Bengaluru; Editing by Mrigank Dhaniwala and Jonathan Ananda
