Lululemon’s latest struggle: slowing sales in key China market

{"text":[[{"start":9.25,"text":"Lululemon is struggling with slowing sales in China, a market that has helped the company offset quality problems, unpopular designs and an angry founder — until now."}],[{"start":18.75,"text":"Wall Street analysts say the China slowdown may signal a deeper challenge ahead. Rival activewear brands are expanding rapidly on the mainland just as Lululemon may be approaching saturation in its largest markets. A pair of social media controversies in May and June dented the brand’s reputation."}],[{"start":36.2,"text":"“China has been the driver of all profitability at the business since North America struggled,” said Laurent Vasilescu, an analyst at BNP Paribas. If the growth there stalled, Vasilescu said, “then numbers start to go down meaningfully.” "}],[{"start":49.650000000000006,"text":"The activewear maker says the troubles are temporary, attributing weaker performance to the online backlash "}],[{"start":56.35000000000001,"text":"Lululemon is asking investors to trust its China strategy as it awaits the arrival of its new chief executive, former Nike executive Heidi O’Neill, who takes over in September. The brand would “continue to invest behind that [China] business to drive the long-term trajectory,” Meghan Frank, chief financial officer and interim co-CEO, said in June. A spokesperson declined to elaborate beyond the company’s prior statements. "}],[{"start":82.5,"text":"O’Neill’s appointment was met with scepticism. Shares fell 13 per cent after the board announced her appointment in April, and founder and former chief executive Chip Wilson publicly questioned the choice. Analysts say O’Neill has positioned herself as a growth-focused leader at a time when Lululemon may instead need to prioritise fixing its US business."}],[{"start":103.05,"text":"By choosing O’Neill, the company ran the risk that its problems would deepen during the leadership vacuum, said Michael Binetti, a retail analyst at Evercore. China may already be showing signs of that. "}],[{"start":null,"text":"

"}],[{"start":113.89999999999999,"text":"In recent years, China compensated for Lululemon’s weak US performance."}],[{"start":119.19999999999999,"text":"Comparable sales in the US have declined or remained flat in each quarter over the past two years. Meanwhile, the company has faced a series of setbacks, including quality-control issues that halted production of several items, a proxy battle launched by Wilson and discounted inventory piling up in stores. The company’s shares have fallen more than 50 per cent in the past year, hovering near an eight-year low."}],[{"start":144.6,"text":"Despite the difficulties, global revenue continued to grow each quarter, largely due to China. The company opened almost 50 stores there in the past two years, leading to consistent double-digit revenue growth. "}],[{"start":156.79999999999998,"text":"Lululemon has signalled that international expansion will remain a priority under O’Neill. The majority of its 25 to 30 planned international openings in 2026 were slated for China, the company said in June. "}],[{"start":169.7,"text":"Some Wall Street analysts have argued the company should slow its global expansion and focus on shoring up its US business."}],[{"start":177.1,"text":"Evidence of trouble in China first appeared in Lululemon’s quarterly earnings last month. "}],[{"start":183.75,"text":"Revenue missed expectations after Texas launched an investigation into allegations that Lululemon products contained undisclosed PFAS, or “forever chemicals”, triggering an online backlash. "}],[{"start":194.8,"text":"“These stories have died down and subsided, but we have not yet seen a return to our pre-disruption trends,” Frank told investors. Lululemon cut its guidance, citing what it called “spikes of negative commentary” on both American and Chinese social media. "}],[{"start":210.9,"text":"The brand maintained its full-year prediction for 20 per cent revenue growth in China."}],[{"start":217.3,"text":"Another social media firestorm followed, after a branded yoga event on the Great Wall of China featured a Japanese drum at a time of heightened diplomatic tensions between the two countries."}],[{"start":227.55,"text":"After Lululemon apologised, discussions about the incident and the subsequent drop in Lululemon’s share price attracted more than 100mn views on Chinese social media site Weibo. "}],[{"start":null,"text":""}],[{"start":239.05,"text":"Analysts say it is not clear whether the fresh backlash will drive Lululemon’s revenue below its already lowered guidance. "}],[{"start":246.70000000000002,"text":"By maintaining its China outlook, Lululemon signalled it believed the slowdown will prove temporary. But even if the controversies fade quickly, analysts question whether the market will continue delivering the same growth.  "}],[{"start":259.1,"text":"Lululemon posted a 13 per cent constant-dollar increase in comparable sales in China this quarter, but that figure was inflated by the late timing of the lunar new year. Absent that, the increase was closer to 5 per cent, according to Vasilescu at BNP Paribas — a much smaller uptick than in previous quarters."}],[{"start":278.25,"text":"Vasilescu said demand might be weakening as Lululemon expands into smaller and less wealthy Chinese cities. Lululemon stores in big cities threatened to cannibalise each other’s business, he added. "}],[{"start":289.7,"text":"“I think they’re kind of tapped out,” Vasilescu said. "}],[{"start":null,"text":""}],[{"start":293.05,"text":"Others argue it is too early to conclude Lululemon has hit a ceiling. China’s activewear market is huge and growing. "}],[{"start":300.8,"text":"But competition is intensifying: rival Alo opened a Hong Kong store in February and another competitor, Vuori, has said it aims to expand its China footprint to 20 stores by 2028."}],[{"start":313.25,"text":"“There’s a lot of competition coming that makes me concerned, and there is elevated pressure on that concern because the US isn’t growing,” said Binetti at Evercore. Binetti said he expected Alo to begin opening stores in mainland China as soon as this month."}],[{"start":327.95,"text":"Domestic rivals are also expanding. Maia Active, owned by Chinese sports conglomerate Anta, is aiming to operate 60 to 70 stores by the end of the year. "}],[{"start":338.09999999999997,"text":"The financial impact could be revealed when Lululemon next reports earnings. O’Neill will officially become chief executive on September 8. "}],[{"start":346.54999999999995,"text":"All eyes will be on her to see whether she can begin turning the business around. Maintaining China growth, Binetti said, “is absolutely mission critical”."}],[{"start":362.44999999999993,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1783247515_7690.mp3"}