Lululemon knows it has lost its surprise factor.
On an earnings call on Thursday, CEO Calvin McDonald said that customers are not responding well to new colors and some products have gone stale.
“I now believe we have let our product life cycles run too long within many of our core categories, particularly in lounge and social,” McDonald said. “We have become too predictable within our casual offerings and missed opportunities to create new trends.”
McDonald added: “We did not have the appropriate balance between existing and new styles across our casual offerings, and the guests stopped responding as they had in the past.”
The Canadian activewear brand topped second-quarter earnings estimates but slightly missed revenue expectations. Net revenue for the second quarter grew 7% year over year to $2.5 billion, while profit fell 5.6% to $370 million.
Besides predictable styles, the CEO listed a slew of other problems plaguing the company.
“Consumers are spending less on apparel overall, spending less in performance active wear, and are being more selective in their purchases, seeking out truly new styles,” he said.
He added that US tariffs and the removal of the de minimis provision also played a big role in the full-year guidance reduction. Lululemon said it expected tariffs to hit full-year profits by $240 million.
Lululemon’s shares sank more than 15% after hours on Thursday. The company is down more than 46% this year.
In a July note, Jefferies analysts said Lululemon is becoming a mass-market brand like the Gap that offers far more than yoga clothes, which could hurt its business.
The analysts, who studied two US locations, said that collections boasted “loud colors and large logos in an attempt to sell beyond their core customers” and a “Sesame Street” color palette, referring to the children’s television show.
The analysts said another big problem was the excessive number of sales that Lululemon was offering, noting they found over 1,000 items on sale on the brand’s digital store.
“It is becoming evident that the company is struggling with sell-through and is resorting to markdowns to clear inventories,” the analysts wrote.
On Thursday’s call, McDonald outlined the company’s turnaround plans.
He said that the company is increasing the number of new styles from 23% to about 35% of the total assortment by next spring. The CEO added that Lululemon is working on giving some iconic items a “fresh perspective” and said that new items will launch faster.
“We have a brand people love with extremely loyal guests who respond well to our new styles and innovation,” he said. “We are clear on the path forward to meet and potentially exceed the expectations of our guests.”
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