Lululemon (LULU) cuts full-year outlook for fourth time as Americas comparable sales drop 12%

Lululemon Athletica's (NASDAQ: LULU) fourth guidance reduction since last June puts the athleisure brand in focus after Q2 revenue came in at $2.42 billion, down 4% year over year and below the $2.46 billion consensus estimate. Shares fell 17% in the Sept. 4 session. Management now expects full-year revenue of $10.35 billion to $10.5 billion, down from a prior range of $11 billion to $11.15 billion, with the Q3 report the next concrete test.

The quarterly numbers

Adjusted EPS fell 34% year over year to $2.01, clearing the $1.79 consensus but not by a margin that changes the picture. The regional breakdown carries more weight. Americas revenue dropped 8%, and same-store sales in the region fell 12%. International revenue rose 4%, though only 2% in constant currencies, while comparable sales in constant currencies slipped 6%. China, which had served as a growth anchor for the company, posted a 2% revenue decline in constant currencies and an 8% drop in comparable sales excluding foreign currency movements. Rest-of-world sales grew 6% in constant currencies, but comparable-store sales on that basis fell 6%.

Gross margin contracted 200 basis points to 60.5%. Without the $0.86 tariff refund, management said the decline would have been 360 basis points. Full-year adjusted EPS guidance of $9.48 to $9.73 carries that refund. The prior guide, before the refund, was $10.95 to $11.15. Inventory ended the quarter roughly flat year over year, which limits forced markdowns for now, though the demand trajectory makes that reading conditional.

Brand position and what to watch

Management attributed the quarter to negative social media commentary, weak reception to new product launches, increased competition, and broad brand deterioration. The China headwind has a specific cause: at a yoga event held on the Great Wall, the company gave a Chinese actor a Japanese taiko drum rather than a Chinese dagu drum, a misstep the company acknowledged drove negative brand sentiment in that market.

A new CEO is stepping in as the company projects Q3 revenue of $2.290 billion to $2.320 billion, a 10% to 11% year-over-year contraction. At a forward price-to-earnings ratio of around 9 times current-year and next-year analyst estimates, the stock screens cheap. Whether that is a genuine value signal or reflects consensus still catching up to the pace of deterioration is the question the next print has to answer. Watch the Q3 report, where management projects adjusted EPS of $0.93 to $0.98 against $2.59 in the year-ago period.