Lululemon Shares Plunge Over 20% After Slashing Full-Year Outlook

Lululemon Athletica Inc. (LULU) shares plummeted more than 20% in premarket trading after the company significantly lowered its financial guidance for the full year. The revised outlook points to a sharp deterioration in the athletic apparel maker's business prospects, overriding a reported earnings beat that was bolstered by a one-time item.

Guidance Cut Triggers Sell-Off

The company's stock fell 20.56% to $96.73 in premarket trading following the announcement. Management reset investor expectations by cutting its full-year forecast, signaling deeper challenges than previously anticipated.

Lululemon's updated full-year guidance includes:

• A sales decline between 5% and 7%.
• Diluted earnings per share (EPS) in the range of $9.48 to $9.73.

Furthermore, the company's guidance for the third quarter implies an expected revenue decline of 10% to 11%, indicating that the business headwinds are accelerating in the near term.

Deeper Demand Issues Emerge

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The forecast revision overshadowed Lululemon's latest quarterly results. While the company reported an apparent EPS beat of $2.92 versus a consensus estimate of $1.82, the figure included $0.86 per share from tariff refunds, making the underlying performance weaker than the headline number suggests. Quarterly revenue of $2.42 billion also missed expectations of $2.46 billion.

The core of the problem appears to be weakening demand and operational missteps. Revenue in the Americas, a key market, fell by 8%, while growth in China slowed to just 4%. The company cited weaker store traffic, product assortment issues, and an increase in promotional activity as factors pressuring the brand.

Analysts Advise Caution

Following the news, Wall Street analysts expressed caution, suggesting the stock's lower valuation does not automatically make it an attractive investment. Analysts at UBS reiterated their Neutral rating, stating, "We don’t believe a pullback represents a good buying opportunity," citing the risk of further downside to earnings estimates. UBS noted that while the stock's forward price-to-earnings multiple of approximately 11x prices in significant bad news, the business fundamentals have not yet stabilized.

Other firms have also adjusted their expectations, with Morgan Stanley cutting its price target on the stock to $83. The consensus among analysts suggests that while the stock is now cheaper, the ongoing compression in earnings and revenue makes it a speculative situation until there is clear evidence of a business turnaround.