Lululemon Athletica shares dropped 12% in premarket trade on Friday after bleak quarterly and annual profit outlooks deepened concerns over the yoga apparel maker's turnaround amid slowing US demand, competition and tariff costs.
The stock is on track to lose more than $1.7 billion from its market value of $14.44 billion if losses hold.
The weak forecasts intensified pressure on the stock, which has lost nearly 63% of its value in the last 12 months, as investors question how quickly Lululemon can revive product momentum in its key US market, while competing with newcomers like Alo Yoga and Vuori.
"Lulu has just entered the 'trap' phase, where fundamentals are deteriorating as competition in all categories remains stiff and pricing power is fleeting for its core franchises," Barclays analysts said.
Lululemon, known for its pricey leggings and athleisure wear, has joined peers in feeling the pinch from muted spending on higher-margin products. Waning brand appeal in North America, design missteps and a lack of fresh styles have also added to the pressure amid a leadership transition.
Investors are watching whether incoming CEO Heidi O'Neill, a former executive at struggling Nike, can revive sales after she takes over in September, a task eased by the May resolution of a months-long proxy fight with founder Chip Wilson that had weighed on the stock.
"A full strategic reset under the new CEO is required," Jefferies analysts said.
NEGATIVE BRAND BUZZ ADDS WORRIES
Meghan Frank, interim co-CEO and chief financial officer, said its yoga campaign rolled out to win back shoppers "hasn't had the expected halo effect on other areas of our assortment" and cited "negative commentary" as a headwind.
The spike in negative brand sentiment across media and social channels was evident in key markets, Barclays said, including the United States and China, and was primarily related to recent concerns about material composition and product safety.
The company's forward price-to-earnings multiple is 10.06, compared with 22.85 for Nike and 15.10 for Adidas , according to LSEG data.
