Lululemon Athletica shares dropped more than 20% in premarket trading Friday after the Canadian athletic apparel company reported second-quarter earnings that missed expectations, with weak China sales and fallout from a viral cultural controversy weighing on results.
Revenue fell 4% year over year to $2.4 billion, a steeper decline than the 2% to 3% drop the company had forecast. Interim CEO Meghan Frank said the shortfall was driven predominantly by China Mainland, where revenue grew 4% year over year but declined 2% in constant dollars, well below the retailer's expectations. U.S. revenue fell 8% year over year, though that figure was better than the company had predicted.
The China slowdown marks a sharp reversal from the previous quarter, when revenue in the region jumped 30% year over year, or 23% in constant dollars. The deceleration followed a public misstep less than a month into the second quarter.
On May 30, Lululemon hosted a yoga festival on the Great Wall of China, welcoming 2,000 guests to what was billed as a celebration of Chinese culture. The event included a drum circle featuring Chinese actor Zhu Yilong. Social media users quickly noticed the drums were Japanese taiko, not Chinese instruments. The actor had posted a photo on Weibo showing both the drum and Lululemon's logo, and discussions around the mistake reached 50 million viewers.
Lululemon removed media from the festival and apologized on its Weibo account, saying it failed to fully identify potential disputes due to a lack of professional knowledge and acknowledged it should have planned and reviewed the percussion performance with more caution. Frank said on the earnings call that the damage was already done.
«As we moved into quarter two, we faced negative commentary in the media and social channels, which impacted traffic, and softer-than-planned response to some new product launches, which contributed to a moderating sales trend,» Frank said.
The company now expects full-year 2026 revenue of $10.35 billion to $10.50 billion, a decline of 5% to 7% year over year. That is a significant downgrade from last quarter's guidance of $11.00 billion to $11.15 billion, which implied a decline of only 1% to flat.
Lululemon is also preparing for a leadership transition. On September 8, Heidi O'Neill will take over as CEO. O'Neill spent 26 years at Nike, where she helped grow the business from $9 billion to $45 billion in revenue. She was laid off from Nike last year when CEO Elliott Hill eliminated her role.
Even before Thursday's earnings report, Lululemon's stock was down more than 42% this year. When markets opened Friday, the shares were on track to hit a 52-week low of under $97, less than half their January value.