Lululemon Athletica (LULU) shares plunged approximately 20% in premarket trading on Friday after the company reported deeply disappointing second-quarter results and slashed its full-year outlook for the second time this year.
The athleisure retailer posted a 4% revenue decline to $2.42 billion, missing the $2.46 billion analyst consensus, while comparable sales cratered 9% globally and 12% in North America. Sales of the company's iconic leggings nosedived roughly 20%, underscoring the severity of the erosion in core product categories that once defined the brand.
The revised full-year guidance represents a dramatic deterioration from earlier expectations. Lululemon now projects fiscal 2026 revenue of $10.35 billion to $10.50 billion, implying a 5% to 7% contraction, down sharply from the prior forecast of $11.0 billion to $11.15 billion. Earnings per share guidance was cut to $9.48 to $9.73, well below the previous range of $10.95 to $11.15 and the analyst consensus of $10.93.
Third-quarter revenue guidance implies a further 10% to 11% year-over-year decline, with North America expected to fall in the mid-teens percentage range.
LULU Options Buyers Could Ring the Register
The magnitude of the stock's reaction suggests that options traders significantly underestimated the potential earnings-driven move. With the stock falling to roughly $100 premarket from a prior close of around $122, the decline wiped out more than $2.5 billion in market capitalization and pushed shares to an eight-year low, approximately 80% below the all-time high of $511.29 reached in December 2023.
The implied volatility priced into options ahead of the report evidently failed to capture the full downside risk embedded in what turned out to be the company's third guidance cut of 2026. Options traders were pricing in a roughly 8% price swing ahead of LULU’s release – more dramatic than its average 5.8% Day 1 earnings reaction over the past 4 quarters, but not quite volatile enough to capture today’s heavy premarket selling.
What’s Ailing LULU
Interim co-CEO Meghan Frank attributed the deterioration to negative social media commentary, inconsistent product launches, and greater-than-expected weakness in core categories. A marketing misstep involving a Japanese taiko drum at a Great Wall of China event compounded reputational damage, contributing to a 2% constant-currency revenue decline in China — a market that had been growing 24% a year earlier.
The company's share of the activewear market shrank approximately 10 percentage points to 43.9% in August, with competitors Alo Yoga and Vuori capturing significant ground.
A leadership vacuum has exacerbated operational paralysis. Lululemon announced incoming CEO Heidi O'Neill, a former Nike (NKE) executive, on April 22 but set her start date for September 8, leaving the company under interim leadership for nearly five months during a critical period of brand deterioration.
Wall Street Reacts to LULU Earnings
At least 12 brokerages lowered their price targets following the results, with Piper Sandler setting the Street-low target at $80. The stock now trades at roughly 11.5 times forward earnings, a steep discount to Nike at 20.8 times and Adidas at 13.4 times, reflecting deep skepticism about a near-term recovery.
Notable value investor Michael Burry has declared his intention to buy additional shares below $100, calling the stock a rare opportunity, though he acknowledged the position has tested his patience considerably.
To see how Barchart contributor Kenny Glick is planning to trade LULU on a gap down after earnings, jump ahead to 16:50 on our latest video:
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On the date of publication, Sarah Holzmann did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.