Lululemon’s (LULU) Brand Problems Force Another Steep Guidance Downgrade

On September 3, Lululemon Athletica (NASDAQ: LULU ) told investors its troubles run deeper than one soft quarter. Revenue fell 4% to $2.4 billion, comparable sales dropped 10% (on a constant dollar basis), and management cut full-year guidance for the second time this year. China Mainland is dealing with a wave of negative social media commentary, North America still can't land a product that resonates, and even the brand's signature leggings business is shrinking. Incoming CEO Heidi O'Neill was set to start the following week, tasked with rethinking a strategy that clearly needs it.

Not everything is going wrong. Lululemon increased its chase volume, the supply chain capability that lets it reorder fast-moving styles quickly, by about 20% compared with last year. That's paying off in away-from-body pieces such as the Groove Wide-Leg, Align Foldover Jogger, Breezily, and an updated Dance Studio Pant, all trending well as shoppers move away from tight-fitting leggings. Management expects that momentum to build through the rest of 2026 and into 2027.

The brand's ability to draw a crowd hasn't disappeared either. The SeaWheeze Half Marathon and Festival returned in August for the first time since 2019, pulling in nearly 10,000 runners from 24 countries and about 14,000 attendees for an evening festival, while more than 85,000 people from 120 countries joined the companion challenge on Strava. The turnout was strong enough that Lululemon already committed to bringing the event back next summer. Rest of World revenue, spanning EMEA and APAC, grew 5% on a reported basis, with South Korea marking its 10th year in that market and a new flagship opening in Tokyo's Harajuku district.

The bigger story is deterioration in the two markets that matter most. North America revenue fell 8%, with Canada down 11% on a reported basis, and management admitted the response to new product launches remains inconsistent heading into the third quarter. Leggings, still the brand's most important category, saw sales drop approximately 20% as shoppers shift toward looser silhouettes, a shift the company hasn't fully offset yet. Accessories revenue fell 13% as the bag business softened.

China Mainland looks worse than the headline number suggests. Revenue grew 4% on a reported basis but actually declined 2% in constant currency, hurt by what management described as a burst of negative commentary across Chinese media and social platforms after a marketing event staged at the Great Wall of China. Tmall also chose not to repeat its 618 promotional event the same way it had the prior year, and Lululemon skipped the promotions that followed, weighing further on digital sales there.