Downward dog days… Athleisure icon Lululemon was a pandemic winner as people donned its comfy sets for home workouts and couch chillouts. Lulu’s flexible fortunes continued well after Covid restrictions ended, but its luck might be stretching thin. While Lulu raised its sales expectations, investors had a problem with its profit forecasts:
The mirror cracks… Discounted leggings aren’t Lulu’s only profit-draining problem. In July 2020, when stocks were soaring and athleisure sales were booming, Lulu bought home-fitness startup Mirror for a cool $500M (its first acquisition). Think: a monthly workout subscription where trainers pump you up from a reflective screen (hence: mirror). Lulu’s CEO said that Mirror continues to be a drag on profits and is likely experiencing less adoption than anticipated.
Boom spending is a bust bug… What a company splurges on during healthy boom times can come back to bite it in a downturn (think: buying a BMW when your portfolio’s soaring, then losing your job and still having to make payments). Lulu was far from the only one to make an optimistic splurge in 2020. One example: Salesforce bought Slack for $28B when the good times were rolling. Last week it said it was cutting 10% of its workforce.