Dive Brief:
- Lululemon’s revenue growth slowed further in Q2, with sales rising 7% to $2.4 billion in the quarter and comps up 2%, according to a company press release. The retailer is projecting similar growth for Q3, of between 6% and 7% year over year.
- The North America region saw revenue edge up just 1% and comps fall by 3%, which CEO Calvin McDonald said on a call with analysts was due to a slowdown in the women’s business over a lack of newness.
- Lululemon cut its full-year guidance as a result of the slower growth, now expecting revenue to rise between 8% and 9% to a maximum of $10.5 billion, versus a prior outlook of revenue growth of 11% to 12% to a maximum of $10.8 billion.
Dive Insight:
Concerns about slowing growth at Lululemon have proliferated in recent months as the activewear retailer has shown signs of weaker performance in North America, though the company’s overall revenue was still up by double-digits in its prior two quarters. Now, though, the retailer’s Q2 growth is in the single-digits, and more of the same is projected for Q3.
“While this is an overall solid set of results from Lululemon, the continued slowdown in the North American market will set alarm bells ringing,” GlobalData Managing Director Neil Saunders said, noting that overall sales are still up 168% over 2019. “But, with less impressive numbers coming through and growth virtually flatlining in overall terms, and declining in on a comparable basis, it is raising a question as to whether Lululemon has finally reached its ceiling in the US and Canada.”
Despite the slower growth, CFO Meghan Frank said the company remains committed to its Power of Three x2 growth plan and remains excited about opportunities in the region.
In Q1, McDonald blamed some of the brand’s underperformance on missed opportunities in its women’s business, due to out-of-stocks and a narrow color palette in leggings. The merchandise misses continued into Q2, and Lululemon caught flak for its Breezethrough legging as well, which customers complained was too thin and unflattering. Wedbush analysts led by Tom Nikic noted in emailed comments that Lululemon’s last major product issue included complaints of see-through leggings back in 2013, and it led to decelerating comps for six straight quarters and a 600 basis-point hit to sales.
“While we don't think the impact will be as pronounced this time around (brand is more diversified than in 2013, has more brand equity/loyalty now, not as embarrassing a problem for customers as having pants be see-through, etc.), we think it's prudent to reduce our sales/EPS forecasts meaningfully due to this issue,” the analysts wrote.
McDonald, for his part, told analysts the leggings miss had a “negligible impact” on its performance and said it was the right step to pull the design from the market. He hinted, however, that the fabric would be reintroduced at some point, and said that while it was designed for hot yoga, it has versatility for hot and humid environments in general. When it does come back, it will likely be in a style the customer already knows and likes.
“We got the read we wanted in that the fabric, which is the real innovation behind it, landed and resonated very well,” McDonald said.
The company is also working to introduce more newness into the women’s business as quickly as possible, fast-tracking several new styles for 2025. McDonald is hopeful that Lululemon’s product and marketing restructure in May this year will improve product creativity going forward and lead to more communication between design and merchandising. The decision came after the exit of former Chief Product Officer Sun Choe, and expanded the chief brand officer and global creative director roles to absorb those responsibilities.
