Key Highlights

  • Lululemon fell on Friday to close at about $94.46, with no company-specific news of its own, caught in sympathy selling after Nike's fiscal first-quarter results and weak outlook.
  • Nike's revenue of $11.21 billion missed the roughly $11.32 billion expected, and its fiscal 2027 adjusted EPS guidance of $1.15-$1.35 fell well below the roughly $1.67 consensus, prompting a cost program called Pace with fewer roles.
  • Lululemon and Nike compete for the same shoppers, sell through overlapping channels and face similar pressures, so investors often assume rivals face a similar climate when the industry leader warns.
  • The weak US jobs report added to the worry, with average hourly earnings growing at the slowest annual pace since May 2021, a signal that could squeeze spending on premium apparel.

Lululemon Athletica (NASDAQ:LULU) fell on Friday, closing at about $94.46, as investors sold athletic-apparel stocks after Nike delivered a gloomy outlook and announced job cuts. The Vancouver-based maker of yoga pants and premium activewear had no news of its own. Instead, it was caught in sympathy selling after the industry's biggest name reported results late on Thursday. On Holding and Deckers Outdoor, the owner of Hoka and Ugg, also moved lower.

Nike's Troubling Numbers

Nike reported fiscal first-quarter revenue of $11.21 billion, down from a year earlier and short of the roughly $11.32 billion analysts expected. Earnings per share of $0.48 beat estimates of $0.43, but the outlook overshadowed that.

The company now expects revenue for fiscal 2027 to decline, with adjusted earnings per share guidance of $1.15 to $1.35, well below the roughly $1.67 consensus. Sales in Greater China fell sharply to $1.18 billion, and Converse revenue dropped to $263 million. North America was a bright spot, rising to $5.13 billion.

Nike also unveiled a cost programme called Pace, targeting about $2.5 billion in savings by fiscal 2031, with roughly $1 billion in pre-tax charges and fewer roles.

Chief executive Elliott Hill said: We have more work to do in NIKE Sportswear, Jordan Brand and Greater China, and we're taking deliberate actions to strengthen those businesses. Nike shares sank on Friday and were the worst performer in the Dow Jones Industrial Average.

Why Lululemon Felt It

Lululemon and Nike compete for the same shoppers, sell through overlapping channels and face similar pressures, from cautious consumers to a tough market in China. When the industry leader warns of falling sales, investors often assume rivals face a similar climate.

The weak US jobs report added to the worry. Employers added only 29,000 jobs in September, well below expectations of about 84,000, and average hourly earnings grew at the slowest annual pace since May 2021. Pay is not keeping pace with inflation, as one assessment put it. Slower wage growth can squeeze spending on premium leggings and sneakers.

A Split Market

The consumer picture was not all gloomy. Consumer discretionary was the best-performing S&P 500 sector on Friday, but that was largely thanks to Tesla, which jumped after beating delivery forecasts. Apparel and footwear names did not share in the gains.

The broader market was strong. The weak jobs data cut expectations for another Fed rate hike at the October 27-28 meeting, and the Nasdaq-100 closed at a record 30,807.93, up 306.37 points. But yields reversed to close higher, leaving the 10-year near its highest level since 2002, which is a burden for consumers with loans.

Nike had already been under pressure before its results. BofA analyst Lorraine Hutchinson downgraded the stock to Underperform on September 27, cutting her price target to $30 from $47, and said: Risks are rising.

Holiday-Quarter Spending Will Be the Real Test

Investors will watch for any sign that Nike's struggles reflect industry-wide weakness or are specific to the company. Spending trends heading into the holiday quarter will matter for Lululemon. The Fed's October 27-28 meeting will shape borrowing costs for households. Earnings season begins with PepsiCo on October 8, offering an early read on how US consumers are holding up, followed by Delta on October 9 and the big banks on October 13 and 14.