By Neil J Kanatt
Sept 4 (Reuters) – Shares of Lululemon Athletica fell about 20% in premarket trading on Friday after the sportswear maker cut its full-year forecast for a second time, underscoring the string of challenges that await incoming CEO Heidi O’Neill.
Known for its high-priced stretchy pants and athletic tops, Lululemon has struggled to contain shrinking margins and worsening brand perception. O’Neill, who takes over on September 8, will have to chart a recovery for a company hit by merchandising missteps, an over-reliance on promotions and market-share loss to new rivals.
The firm’s shares were trading at about $96.91 before the bell, and if losses hold, Lululemon would lose about $2.8 billion in market value, deepening the stock’s year-to-date decline to about 41.5%.
Revenue in the Americas, the company’s largest market, fell 8% from a year earlier in the second quarter, compared to a 1% increase the previous year, with the firm struggling to reignite demand as inflationary pressures impacted consumer spending.
Telsey Advisory analysts also said while Lululemon was “chasing styles” that were working, it still has work to do to “elevate the assortment on a broad basis.”
TOUGH TURNAROUND
The deteriorating demand has raised questions about how quickly O’Neill, a former Nike executive, can engineer a recovery.
While analysts said broad-based declines across businesses make it difficult to have confidence in the near-term, some also expressed uncertainty in long-term recovery.
The downbeat results are “apt to unnerve meaningfully even longer-term-oriented investors examining the name,” Brian Nagel, analyst at Oppenheimer Research, said in a note, adding that investors should await an initial game plan from O’Neill before considering a more constructive stance on shares.
While Lululemon plans to increase marketing spending in the second half to rebuild brand appeal, Telsey Advisory analysts cautioned such efforts could take time to reengage consumers meaningfully.
Analysts also argued the retailer continues to operate a cost structure built for growth despite declining sales, with store square footage increasing 11% from a year earlier in the quarter.
Lululemon’s shares were trading at about 11.50 times forward earnings, compared with 20.76 for peers Nike and 13.41 for Adidas.
(Reporting by Juveria Tabassum, Kanishka Ajmera and Neil J Kanatt in Bengaluru; Editing by Mrigank Dhaniwala and Jonathan Ananda)
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