Lululemon stock collapses: Soft sales in China reveal negative impact of viral drum controversy

Shares of Lululemon Athletica (Nasdaq: LULU) are down more than 20% in premarket trading on Friday. 

The plunge follows a disappointing second quarter earnings report, released by the Canadian apparel company on Thursday. 

Lululemon’s revenue fell 4% year-over-year (YOY) to $2.4 billion. It failed to meet the company’s predicted 2% to 3% decline, “with the shortfall driven predominantly by China Mainland,” Lululemon interim CEO Meghan Frank said in a post-earnings call. 

China saw a 4% growth YOY—though a 2% decline when looking at constant dollars—but failed to meet the retailer’s expectations. Meanwhile, revenue fell 8% YOY in the U.S., though the figure was still better than the company’s prediction. 

Downbeat

As for China, all it takes is looking at quarter one’s growth to see how bad 4% is. Last quarter, Lululemon had a 30% jump YOY in China’s revenue, holding at 23% in constant dollars.

Then, less than a month after quarter two began, Lululemon made a very public fumble.

On May 30, the company hosted a yoga festival on the Great Wall of China. The event’s 2,000 guests were welcomed to what was supposed to be a celebration of Chinese culture. That celebration featured a drum circle with Chinese actor Zhu Yilong. 

The only problem? The drums were actually Japanese taiko. 

The actor posted a photo of himself on Weibo—a popular Chinese social media platform. The drum and Lululemon’s logo were both visible. It didn’t take long until social media users noticed the mistake, with discussions reaching 50 million viewers. 

Lululemon scrubbed media from the festival and apologized: “We attach great importance to the feedback from the society,” the company posted to its Weibo account. “Due to lack of professional knowledge, we failed to fully identify potential disputes early and have fully recognized that we ought to have planned and reviewed the percussion performance with more caution and thoroughness.”

But, as Frank indicated on Thursday’s earnings call, the damage was done. 

“As we moved into quarter two, we faced negative commentary in the media and social channels, which impacted traffic, and softer-than-planned response to some new product launches, which contributed to a moderating sales trend,” Frank said on the call. 

Beginning a new chapter

Lululemon now expects $10.35 billion to $10.50 billion in revenue for 2026, a drop of 5% to 7% YOY. This is a significant change from last quarter’s prediction of $11.00 billion to $11.15 billion and a decline of only 1% to 0%. 

Notably, Lululemon starts a new chapter next week.

On September 8, Heidi O’Neill will take over as CEO. O’Neill spent 26 years at Nike, supporting its growth from a $9 billion business to a $45 billion one. She was laid off from Nike last year when CEO Elliott Hill eliminated her role. 

Even before Thursday’s earnings report, Lululemon’s stock price was down more than 42% this year. When markets open on Friday, it is on track to hit a 52-week low of under $97 a share, less than half of what it was in January.