Key Points
Lululemon reports fiscal second-quarter results after the market closes on Thursday of next week.
Expectations are low, with a sharp decline in quarterly profitability on only the second decline in sales as a public company.
With a new CEO coming in a few days after the financial update, Lululemon may get a pass this earnings season.
Momentum is everything heading into earnings season, and right now, the trend is not a friend of Lululemon Athletica (NASDAQ: LULU) shareholders. The former athleisure star is stumbling heading into its next financial update, coming up next week after Thursday's market close.
Lululemon is thigh-deep into what should be its fifth consecutive year of decelerating sales growth. The news is actually worse on the bottom line. The yoga and fitness apparel specialist has posted negative earnings growth for five consecutive quarters, with the gap widening with every passing report.
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Trying to make this workout work out
Lululemon set the bar low when it offered up guidance for the fiscal second quarter in late spring. It expects revenue to decline 2% to 3%, with a 42% to 43% plunge in net income. With the stock cut nearly in half over the past year, the good news is that pessimism is already baked deep into the current share price.
The company that made fitness gear fashionably acceptable outside of hot yoga classes a generation ago is in a tough spot, but don't assume Wall Street will pull the PVC sticky mat out from under shareholders next week. There's already one catalyst in the works: change.
Former Nike (NYSE: NKE) executive Heidi O'Neill will become Lululemon's next CEO on Sept. 8, less than a week after its financial update. A few outsiders have helped breathe new life into fading brands, and Lululemon is fertile soil for a market attitude adjustment.
The next few quarters could prove challenging for the retail stock, and not just because it will take time to see if O'Neill's changes bear fruit. Dick's Sporting Goods (NYSE: DKS) plummeted 31% after offering a weak near-term outlook, which is weighing mostly on athletic footwear brands but also on leisure apparel companies.
Lululemon investors haven't been able to catch a break lately, but a clean break in leadership -- now just days away -- could reset market sentiment. Lululemon is down, but it's certainly not out.
Rick Munarriz 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.