Lululemon sees its “it-girl” title slipping through the cracks

It-girl athletic brand Lululemon may be losing its title in the US, but the company could be acquiring a new one in its latest regional expansion.

Emerging athletic and athleisure brands like Alo Yoga, Skims and Fabletics have grown incredibly in the US, keeping up with the changing consumer economy through the smart use of celebrity marketing.

Related: Lululemon fights to keep ‘it-girl’ title away from competition

Although Lululemon reported earnings per share of $3.15, beating analysts’ expectations of $2.93 by 7% in Q2 of fiscal 2024, the company’s US sector suffered a steep decline.

Lululemon shares were down 1.07% at last check on Friday and are down 31.6% year-to-date.

Lululemon CEO and Director Calvin McDonald

Lululemon’s top region underperforms in Q2

The Americas is the company’s most profitable region, with a strong presence in the US. However, due to the region’s disappointing performance in the second quarter of this fiscal year, a recent territory expansion may soon replace it.

According to Lululemon’s Q2 2024 earnings report, the company’s total net income increased 8% on a constant dollar basis compared to the same period last year.

Even though the Americas previously reported the most growth, this year’s second-quarter net income growth was driven primarily by mainland China, Lululemon’s newest regional addition.

China had strong growth of 37%, the largest increase of all territories.

Although mainland China was successful, the Americas fared differently, reporting a 5% drop in the company’s total net income.

In Q2 of this fiscal year, the Americas generated net income of $1.7 billion, or 73% of the company’s total net income, down from last year’s Q2 net income of 78%.

Americas net income increased 2% on a constant dollar basis, but comparable net sales decreased 2% on a constant dollar basis compared to the second quarter of the prior fiscal year.

Two different regions, same marketing strategy

Although Lululemon acknowledges declining comparable sales numbers and loss of total revenue in America, the company has chosen to use the same marketing strategy in China.

Unlike its strongest competitors in the US, which successfully build brand awareness by collaborating with huge celebrities, Lululemon relies mainly on community events and partnerships with fitness instructors and local influencers.

Although the cultures of both regions are very different, this strategy obviously no longer works for the US

Lack of inventory and size inclusion

The company’s growing U.S. competitors focus their product development on the latest fashion trends and inclusion, but Lululemon has recently failed to do so.

In July, Lululemon launched Breezethrough, a line of high-heat workout clothing, but had to halt sales shortly after its debut because it failed to meet customer expectations.

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Unlike its competitors’ products, this line was anything but inclusive, causing customers to complain about unflattering silhouettes and a lack of sizing.

According to CEO and director Calvin McDonald in the Q2 2024 earnings call, this move negatively affected the company’s gross margin, but they will use it as a learning lesson.

“We saw it as an opportunity to reset and take a different approach to what the new organization does, having a stronger balance between design and products, which will lead to more creative conversations and results,” said McDonald’s.

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The company said in its earnings call that it prioritized new inventory during the quarter, and Lululemon reported a 14% inventory decline for Q2.

Despite previously promising to work to bring in more new inventory, Lululemon’s chief financial officer, Meghan Frank, said SG&A expenses would be flat compared to last year.

“We are prudently managing our expenses while continuing to invest strategically in our Power of Three x2 roadmap,” Frank said during the earnings call, referring to the company’s outlook.

Lululemon’s perspective

Lululemon unveiled its Power of Three x2 plan, the company’s outlook for the rest of 2024 and beyond.

The company plans to focus on novelty and innovation, with a goal of doubling its revenue from $6.25 billion in 2021 to $12.5 billion in 2026.

“I am excited about the newness and innovation that will appear in our future product ranges. While we are disappointed with the recent performance in women, we see many strengths in our US business,” said McDonald.

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