Lululemon used to be the brand that never had to put things on sale. Not anymore. Sales are falling, leggings, its signature product, dropped about 20% last quarter, and the company is clearing out more unsold inventory at a discount, which is eating into profits.
This week, new CEO Heidi O’Neill shook up the leadership team, bringing in Athleta’s CEO to run product. Analysts say the new team has “a great deal to prove,” Retail Dive reported.
Is Lululemon struggling?
Yes, especially in North America. In its most recent quarter, which ended in early August, sales fell 4% to $2.4 billion. Comparable sales dropped 10%, and 12% in the Americas, a drop William Blair analysts called the worst ever for the company. Women’s leggings sales fell about 20%, the company said on its earnings call, as shoppers shifted toward looser, “away-from-body” styles.
The company now expects full-year sales of $10.35 billion to $10.5 billion, down 5% to 7% from last year, and earnings per share of $9.48 to $9.73, down from $13.26. It cut its forecast for the second quarter in a row, and the stock dropped about 18% after hours on the news, WWD reported. Shares were already down about 43% this year by July, among the worst in the S&P 500, Barchart noted.
How are markdowns hurting Lululemon’s profits?
When products don’t sell at full price, they get marked down, and every markdown cuts into profit on that item. Lululemon said markdowns rose 0.7 percentage points of revenue last quarter “due to slower top-line trends necessitating additional seasonal clearance,” and it expects them to rise about another 0.6 points this quarter.
The full picture is messier than the headline number. Gross margin actually rose to 60.5% last quarter, but only because of a one-time boost: $134.5 million in refunds from the tariffs the Supreme Court struck down, worth 5.6 percentage points. Without it, product margins fell 1.5 points from tariffs and markdowns, and fixed costs like stores and distribution weighed down another 2.3 points as sales shrank. Even with the refund, profit fell 11% to $329 million. For this quarter, Lululemon expects gross margin to fall about 2.5 points.
Why are shoppers buying less Lululemon?
The company blamed product launches that didn’t land, “negative commentary in the media and social channels” that hurt store traffic, and a slowdown in core categories like leggings and women’s tops, WWD reported. The brand has also dealt with a public fight with founder Chip Wilson and questions in China about its use of “forever chemicals.” Price matters too: in a year when shoppers are trading down, leggings that often cost $100 or more are an easy thing to skip.
On Oct. 7, O’Neill named Maggie Gauger, Athleta’s CEO and a former Nike vice president, as president and chief product officer, and Joseph Godsey as chief operating officer. Two senior executives are leaving. Analysts at William Blair noted Gauger has had “little tangible success” at Athleta over the past year.
The BeezLoop Take
Lululemon’s problem isn’t one bad quarter. It’s that the brand stopped being the thing people had to have. When a premium brand loses that, it starts discounting, and discounting teaches customers to wait for the sale, which makes the next full-price launch even harder. That’s the trap Lululemon is in.
The tariff refund hid how bad the margins really are this year. Next year there’s no refund to lean on. O’Neill’s bet is that better design fixes everything, and it might. But hiring executives from two struggling brands is a risky way to prove it.
The open question: can Lululemon win back shoppers without leaning on even deeper markdowns this holiday season?
Also on BeezLoop: is bargain shopping dead?, and Americans owe $1.26 trillion on credit cards.
Sources: Lululemon Q2 2026 earnings call transcript (The Motley Fool) · WWD · Retail Dive · Barchart via Yahoo Finance · Bloomberg (video)
