Why Lululemon Stock Crashed Today
Key Points
Fashion trends are shifting away from Lululemon's core offerings.
Operational missteps are compounding the problem.
Shares of Lululemon Athletica (NASDAQ: LULU) plummeted on Friday after the athletic clothing maker slashed its full-year profit forecast.
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Sales shortfall
Lululemon's net revenue declined 4% year over year to $2.4 billion in its fiscal second quarter, which ended on Aug. 2.
The retailer opened 11 new company-operated stores and closed two during the quarter, bringing its total to 825 locations.
Yet its comparable sales, which measure revenue at stores and direct-to-consumer e-commerce sites open for at least a year, fell 9%.
Shifting trends
To the heartbreak of many, Lululemon's famed leggings appear to be going out of style.
"We remain committed to the category, but there are shifts occurring with guests looking for away-from-body silhouettes," interim co-CEO Meghan Frank said during a conference call with analysts.
Worse still, Lululemon is losing market share to rivals like Alo Yoga, according to retail intelligence provider PassBy.
In all, Lululemon's leggings sales sank roughly 20% in the second quarter.
Lululemon's operating income, in turn, dropped 13% to $453.7 million. The decline would have been even steeper if not for $134.5 million in tariff refunds.
All told, the beleaguered company's earnings per share, which were propped up by stock buybacks, decreased 6% to $2.92.
Turnaround efforts are likely to take time
Management sees more declines ahead. Lululemon expects its third-quarter net revenue to shrink by more than 10% to $2.3 billion.
Investors were also disheartened to see Lululemon cut its full-year earnings per share guidance to $9.48 to $9.73, down from a prior forecast of $10.95 to $11.15.
Incoming CEO Heidi O'Neill, a former Nike executive, will be facing quite a challenge when she takes the helm of the struggling apparel designer on Sept. 8.
Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.