What's happening: Shares of Lululemon Athletica (NASDAQ:LULU) were down 11% as of 11 a.m. EDT Thursday following the yoga-apparel retailer's fiscal second-quarter financial report earlier in the morning. The company posted solid revenue growth of 16% on an 11% rise in total comparable sales, but although earnings topped expectations, Lululemon said that it expected fiscal-third-quarter earnings to fall by as much as a sixth from year-ago levels, defying investor expectations for modest bottom-line growth.
Why it's happening: Lululemon has done a good job in restarting sales growth in the aftermath of its quality-control controversies in recent years, as CEO Laurent Potdevin and his executive team have undone much of the damage done under previous leadership. Yet even though top-line performance has been solid, Lululemon has seen a precipitous drop in margins, suggesting that the retailer is making concessions based on price in order to keep customers loyal to the brand.
At this point, Lululemon seems to be moving in several different directions at the same time, ranging from attempts to shore up its core women's apparel lines to fostering the growth of its budding men's segment and its ivivva children's stores and even releasing a craft beer. To convince investors that its turnaround can last and continue, Lululemon will need to focus on its most promising opportunities, and until its efforts show more results, shares could remain under pressure for a while.