Lululemon bets on 'away from body' pants as customers sour on form-fitting leggings

By Bill Peters

Lululemon's stock falls 18% after hours as analysts question the yoga-wear maker's fashion assortment and digest its disappointing outlook

Lululemon reported second-quarter results on Thursday, missing the mark on sales. But the company said looser-fitting pants have been doing well.

Wall Street might be worried that Lululemon can't stay on trend, but the struggling yoga-wear maker on Thursday said one thing is working: looser-fitting pants.

Even as overall sales of leggings fell around 20% in the second quarter, management said that leggings that weren't form-fitting have been doing well.

"There are shifts occurring with guests looking for away-from-body silhouettes," Meghan Frank, Lululemon's (LULU) interim co-CEO and chief financial officer, said during the company's earnings call on Thursday. She called out lines like its wide-leg Groove pants and Foldover Joggers.

"All are trending well, and we expect momentum to build in the back half of the year and into 2027," she said.

Consumer preferences over the past two decades have shifted back and forth between tighter and looser fits. But some analysts think Lululemon's struggles go beyond silhouette preferences. As Lululemon shares remain in a deep slump, many on Wall Street have questioned Lululemon's fashion choices and criticized it for departing from its core athletic gear.

Lululemon has expanded into things like rugby shirts, charms and collaborations with brands like Disney.

Frank's remarks came as Lululemon reported declining second-quarter sales and reduced its full-year outlook - just days before Heidi O'Neill, a veteran of Nike and Levi's, takes over as Lululemon's CEO on Sept. 8. Shares tumbled about 18% after hours on Thursday.

O'Neill will be arriving during a difficult year for Lululemon, following concerns over its product quality and style relevance, as well as a board dispute with founder Chip Wilson. Other issues, like cautious consumers and competition with Alo and Vuori, have weighed on Lululemon's stock. Shares of Lululemon have fallen 41% so far this year through Thursday's close.

Lululemon said it expects sales for the year to land within a range of $10.35 billion to $10.5 billion, which would mark a decline of 5% to 7%. That's worse than the company's forecast in June for $11 billion to $11.15 billion in sales.

"While we continue to navigate some challenging dynamics, we are taking a prudent approach with our revised full-year outlook," Frank said in the company's earnings release.

For the second quarter, Lululemon's sales fell 4% to $2.42 billion. Analysts polled by FactSet expected $2.46 billion. Same-store sales, or those made at established stores, fell 9%, compared with Wall Street's estimates for a 4.6% drop. Lululemon earned $2.92 a share during the quarter, topping estimates for $1.79.

Jefferies analyst Randal Konik, in a research note published Thursday after the results, said O'Neill "has a mountain to climb" when she settles into the CEO role.

"2Q results show brand momentum is fading fast and share losses are mounting," he said.

Lululemon on Thursday said "negative commentary in the media and social channels" hurt results, after the board dispute and complaints from consumers that some of its workout wear was too sheer. That sentiment also followed the company to China, where a yoga event at the Great Wall drew backlash after people online questioned whether the gathering featured a Japanese taiko drum.

The company said it would open fewer stores overall this year, and cut the number of planned pop-up shops.

Still, Frank said that people were still using Lululemon's gear to exercise.

"The wellness trend is strong," she said. "We continue to be a leader in technical fabric development, and guests continue to purchase our leggings for their exercise and training needs, particularly yoga and Pilates."

-Bill Peters

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-03-26 2024ET