Lululemon slides as sales pause on new product spooks analysts

LULULEMON Athletica shares dropped to their lowest level in four years as analysts raised fresh concerns about the company’s ability to hit financial targets due to ongoing product execution issues and slowing activewear trends.

Shares slid as much as 9.5 per cent on Thursday (Jul 25), hitting the lowest intraday level since May 2020, after the retailer said it was halting sales of a product line it just introduced. The stock has already plunged 50 per cent this year to Wednesday’s close, and is on pace for its worst year since 2008, according to data tracked by Bloomberg.

Lululemon has paused sales of its Breezethrough yoga wear to “make any adjustments necessary to deliver the best possible product experience”, a company spokesperson said on Wednesday.

The decision prompted JPMorgan to remove Lululemon from its list of top stock picks. The Breezethrough product line halt removes a key revenue driver for the retailer in the back half of the year, analysts led by Matthew Boss, said on Thursday.

“Breezethrough compounds recent in-stock/colour palette execution concerns, pushing out the reacceleration catalyst likely to 4Q/Holiday with our recent fieldwork pointing to no signs of near-term improvement through 2Q,” said Boss, who has an overweight rating on the stock.

Meanwhile, Citigroup downgraded its rating on Lululemon shares to neutral from buy, saying its credit card data suggests active apparel trends further decelerated in the second quarter.

Analysts’ have raised several concerns on Breezethrough, including product allocation to stores, pricing, fit and comfort levels. Its launch is just the latest in a string of ongoing challenges at Lululemon. Most recently, Lululemon’s legging business was hurt by the lack of colour newness and the unavailability of certain sizes.

On the company’s June conference call, CEO Calvin McDonald stated that revenue growth would accelerate in the second half of the year, helped by “upcoming product launches and innovation”.

However, Citi’s Paul Lejuez warned that trends in the active apparel category are not in Lululemon’s favour. After three years of strong growth, the group has “slowed meaningfully” in 2024 and he sees “no signs” that it will improve later this year.

“This dynamic, coupled with Lululemon’s execution issues (lacklustre product assortment/lack of colour/sizing), leave Lulu more susceptible to increased competition and promotional pressures,” he said.

Lululemon is expected to report results for its second quarter in late August. The stock currently has 25 buy-equivalent ratings, 10 holds, and four sells, according to analysts tracked by Bloomberg. The average price target is US$382, which implies a more than 50 per cent upside from the current level. BLOOMBERG