Athleisure Is Still Hot. So Why Is Lululemon Struggling?

Heidi O’Neill walks into Lululemon’s Vancouver headquarters this week inheriting a brand in genuinely worse shape than when she accepted the job. Days before her official start, the athleisure company posted another disappointing earnings report, cutting its full-year outlook for the second time in three months. Shares plunged roughly 20 percent, dropping the stock to its lowest level in eight years just as its new chief executive prepares to walk through the door.

Revenue Missed Estimates While North America Fell Even Further

The numbers behind that stock drop paint a genuinely rough picture. Second-quarter revenue fell 4 percent year over year to $2.42 billion, missing Wall Street’s roughly $2.46 billion estimate. Comparable sales dropped 9 percent globally, with North America hit hardest at a 12 percent decline. The Americas region, still Lululemon’s largest market by far, has now weakened for multiple consecutive quarters running.

The Product That Built the Brand Just Fell 20 Percent

Nothing captures the company’s core problem quite like what happened to its signature product. Leggings, the item that built Lululemon into a global athletic-apparel powerhouse in the first place, saw sales plunge approximately 20 percent during the quarter. Interim leadership described a “greater-than-expected” slowdown specifically in that category, a detail analysts say cuts straight to the heart of the brand’s larger struggles.

The Full-Year Forecast Has Now Been Cut Twice in Three Months

Lululemon’s full-year forecast has now been cut twice within just three months, and the newest numbers are considerably grimmer. The company currently projects fiscal 2026 revenue between $10.35 billion and $10.5 billion, a decline of 5 to 7 percent, down sharply from its earlier guidance of $11 billion to $11.15 billion. Adjusted earnings per share guidance dropped just as steeply, from a previous range of $10.95 to $11.15 down to $9.48 to $9.73.

A Japanese Drum Mistake in China Made Things Even Worse

Beyond the numbers, Lululemon also stumbled into a genuine public relations problem in one of its key growth markets. A promotional campaign in China mistakenly incorporated a Japanese drum, sparking online backlash that measurably hurt sales in the region. Interim executives specifically cited negative social media commentary as a factor weighing on performance in mainland China during the same quarter.

One Analyst Calls It an “Unenviable Position” to Inherit

Analysts watching the transition describe O’Neill’s situation in blunt terms. She takes over in the “unenviable position of leading a company that is in a worse position than when she accepted the job,” said Sky Canaves, a principal analyst at research firm Emarketer. With North American sales falling and overseas momentum stalling too, she added, Lululemon faces “wider problems with both product and marketing” across an increasingly competitive activewear market.

This Analyst Says the Problem Isn’t the Market, It’s the Brand

Other analysts argue the broader athleisure market’s health makes Lululemon’s specific collapse harder to explain away. There’s “no external reason for the numbers to be quite this bad,” according to Neil Saunders, managing director of GlobalData. He pointed to “an incredibly boring assortment, too much non-core product that misses on both fashionability and style, and an absence of good technical innovation” as the real drivers behind the brand’s rapid loss of cultural relevance.

Younger Shoppers Have Already Moved On to Newer Brands

Younger shoppers, once Lululemon’s core audience, have increasingly redirected their spending toward newer competitors entirely. Brands like Alo have captured yoga-focused customers, while FP Movement and Vuori have pulled share in general activewear specifically. Reversing that shift, alongside dialing back the discounting that has eroded margins, now sits squarely on O’Neill’s list of immediate priorities as she settles into the role.

A Tariff Refund Quietly Masked How Bad Things Really Got

Behind the headline numbers, some details complicate the picture further in both directions. A one-time tariff refund benefit helped mask just how much underlying revenue actually declined this quarter. At the same time, the company is scaling back its physical footprint, planning 35 net new store openings in 2026, down from 40, and roughly 40 pop-up locations instead of last year’s 65, signaling a more cautious approach to growth overall.

Investors Want One Thing From O’Neill: A Real Turnaround Plan

Investors are now watching O’Neill for one thing above all else: a genuinely credible turnaround plan rather than incremental fixes. With her arrival, Saunders said, investors will be “desperately looking for a very clear course correction strategy that puts Lululemon back on stable footing.” Whether that strategy exists yet, or how quickly it might actually work, remains the central question hanging over the company’s next several quarters.