Lululemon has reported a drop in sales for the second quarter, as a steeper decline in the US dragged down overall results.
The athletic apparel retailer saw its net revenue slide 4 per cent to $2.4 billion during the quarter ended August 2. On a constant currency basis, sales fell 5 per cent.
According to GlobalData MD Neil Saunders, the situation has gone “from bad to worse” at Lululemon, with total sales firmly in decline, driven by serious revenue erosion in the core Americas market.
Americas net revenue fell 8 per cent during the quarter, a further drop from the 3 per cent decrease in the first quarter.
“Given that the overall athleisure category has been nowhere near this soft, and that other brands are still producing reasonable growth, there is no external reason for the numbers to be quite this bad. The reason they are is because Lululemon has gone firmly off the boil,” Saunders said.
The analyst attributed the loss of brand heat to a boring assortment, too many non-core products, and a lack of strong technical innovation.
“Lululemon is still a huge business and is the athleisure leader, but this offers no defense against stasis in a market that has become more fragmented and more crowded with good alternatives.
“The fashion-driven aesthetic of Alo, the lifestyle position of Vuori, the more refreshing image of FP Movement, and many more alternatives are all pulling more and more spending away from Lululemon,” he said.
International sales were up 4 per cent, maintaining the momentum seen in previous quarters. However, Saunders noted that some of the problems in the US are now starting to manifest in lower overseas growth.
On the bottom line, net income dropped 11 per cent despite a tariff refund, which the analyst attributed to the sales decline and the brand’s expensive stores.
“This has, in turn, resulted in a rather gloomy outlook for the rest of the fiscal year. It also makes solving the issues far more pressing as Lululemon does not want to enter a vicious financial spiral that makes necessary investments challenging to sanction,” he said.
The company expects net revenue to fall 10-11 per cent in the third quarter and 5-7 per cent for the full year.
“All of this means that Heidi O’Neill inherits an opportunity to change the trajectory, but along with this she gets a big bunch of problems that need to be sorted. Expectations have been lowered, but investors are desperately looking for a very clear course correction strategy that at least puts Lululemon back on a stable footing,” Saunders said.
