Lululemon stock plunged after slashing its annual forecast for the second time

Lululemon's stock experienced a significant drop, losing over 20% in early trading on Friday. This decline came after the company released its second-quarter earnings report on Thursday, which showed a disappointing performance. The revenue fell 4% year-over-year (YOY) to $2.4 billion, failing to meet the predicted decline of 2% to 3%. The shortfall was largely attributed to China, where Lululemon faced negative commentary in the media and social channels, impacting traffic and a moderating sales trend.

China, which had previously witnessed a 4% growth year-over-year, saw an 8% decline in revenue for Lululemon, well below the company's expectations. This was a stark contrast to the previous quarter's 30% YoY growth in China's revenue. The controversy began when Lululemon hosted a yoga festival on the Great Wall of China on May 30, featuring a drum circle with Chinese actor Zhu Yilong.

The drums were actually Japanese taiko, leading to social media backlash on Weibo, with discussions reaching 50 million viewers. Lululemon later apologized, acknowledging their lack of professional knowledge and the need for more thorough planning.

CEO Meghan Frank, who took over as interim CEO following the earnings call, stated that the damage had already been done. She acknowledged that the negative commentary and response to new product launches had contributed to the moderating sales trend. Looking ahead, Lululemon now expects $10.35 billion to $10.50 billion in revenue for 2026, a drop of 5% to 7% year-over-year, significantly lower than the previous prediction of $11.00 billion to $11.15 billion.

The company is set to start a new chapter on September 8, with Heidi O'Neill taking over as CEO, having spent 26 years at Nike. Despite the earnings report, Lululemon's stock price has already dropped more than 42% this year, with the market expecting it to hit a 52-week low of under $97 a share.