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Lululemon is staring down some serious problems, according to headlines emerging from several news outlets and analyst notes. As Retail Dive’s Daphne Howland reported, Lululemon observed a net revenue tumble of 4% (to $2.4 billion across the board) and a fall of 8% in the Americas. Comp sales trended downward by 9% -- and even deeper in the Americas, at 12%.
Incoming CEO Heidi O’ Neill, having previously spent 30-plus years with Nike, takes the helm at Lululemon next week. She will be inheriting a tough position given the current environment for the athleisure brand and retailer, with Howland citing Sky Canaves, Emarketer principal analyst, on that subject.
“When Heidi O’Neill finally takes the helm as Lululemon CEO next week, she will be in the unenviable position of leading a company that is in a worse position than when she accepted the job,” Canaves suggested.
Other notable items highlighted by the report included:
The broader picture suggests Lululemon enacting a strategic pullback: Net income fell by 11% to $329 million, store openings and pop-up plans were curtailed, and guidance took on a further negative revision, with Lululemon now expecting net revenue to dip by as much 7% for the full year.
The c-suite is aware, and admitting, to an ongoing problem: CFO and interim co-CEO Meghan Frank spoke to analysts over the company’s woes, with Q3 projections suggesting a deeper dive of 10%-11% on the net revenue front. “As we move into Q3, while we are seeing good guest reaction to our activations and some of our newer styles, the overall response to our product launches remains inconsistent. And we’ve continued to see pressure on the brand in both of our largest markets [China and the Americas],” she stated.
Lululemon’s staple product in leggings shows weakness: The company’s legging sales were down by 20% in the second quarter, alarming analysts – including Laurent Vasilescu of BNP Paribas. “We did a double take when lulu called out that leggings were down 20% in 2Q. We could see multi quarter and even multi year declines as the consumer moves away from leggings,” Valisescu wrote in a recent research note, per Howland.
As RetailWire BrainTrust panelist and BridgeCommAI CEO Mohamed Amer, Ph.D., underscored in a recent LinkedIn post, O’Neill’s got quite the task ahead of her – and her previous experience may actually work to her detriment.
“Heidi O'Neill arrives with strong operational credentials from a company that has faced its own version of this problem. Nike has spent several years managing the tension between its premium performance identity and the scale demands of a global consumer goods business, with mixed results,” Amer wrote.
“That parallel is instructive precisely because it is not reassuring. The risk is not that O'Neill lacks capability. It is that she was formed inside an organization managing a similar structural problem, and that the institutional knowledge she brings may include some of the same assumptions that produced it. New CEOs can reset without the political cost of reversing mid-stride. That is a real advantage, but only if she first sees the situation clearly,” he added, emphasizing that correcting the operational sequence – particularly zeroing in on the product process versus diving into marketing corrections right away – was the first order of business for Lululemon’s new chief exec.