No Love for Leggings? Lululemon Sales Drop Ahead of Heidi O’Neill’s Arrival as CEO Next Week

On one hand, Heidi O'Neill has her work cut out for her as chief executive officer of Lululemon Athletica Inc.

Second-quarter sales fell 4 percent to $2.4 billion with 12 percent comparable sales drop in the Americas and a 3 percent decline internationally.

And even with a $134.5 million boost from tariff refunds, profits dropped 11.2 percent to $329.2 million.

But on the other hand, current management cut the company's outlook significantly for the full year, citing prudence and lowering investor expectations even more.

That could give O'Neill, a Nike veteran, a little more room to turn around the company when she takes the reins on Tuesday.

For now, investors were taking a wait-and-see — from a distance — approach and pushed shares of the company down 18 percent to $99.82 in after-hours trading on Thursday.

On a conference call with analysts, Meghan Frank, interim co-CEO and chief financial officer, painted a picture of what O'Neill is stepping into, pinpointing the company's top-line weakness to a sales decline of 4 percent in mainland China and 8 percent in North America.

The company's action plan — focused on product creation, product activation and enterprise enablement — showed some encouraging signs in the first quarter. But Frank said the brand faced "negative commentary in the media and social channels, which impacted traffic and [contributed to a] softer-than-planned response to some new product launches."

That bad publicity included the company's high-profile proxy battle with founder Chip Wilson and an investigation into the brand's use of "forever chemicals," which sparked intense debate in China.

Whatever it is, Lululemon can't seem to reconnect with its once-insatiable consumers.

"While we're seeing green shoots and product, particularly within some of our newer away-from-body bottoms for women, we are also seeing an inconsistent performance in our assortment overall," Frank said. "This included a greater-than-expected slowdown in some of our core categories, particularly leggings and women's tops."

Lululemon's legging sales fell roughly 20 percent in the second quarter.

Alternatively, she said "away from body" bottoms styles have been seeing good traction.

"Leggings remain an important category for us where we remain the market leader," she said. "The wellness trend is strong. 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…