By Savyata Mishra

(Reuters) – Lululemon Athletica has reduced its annual sales and profit forecasts as demand for its expensive leggings and tank tops has decreased in North America due to selective consumer spending.

Shares fluctuated between significant losses and gains but ultimately settled 5% higher after trading hours, as the company’s profit exceeded estimates and it pledged to enhance its product mix.

After years of consistent growth, Lululemon is experiencing a sluggish start to 2024, largely attributed to ongoing inflation impacting consumer spending.

The women’s segment has struggled due to slower innovation in seasonal apparel, reduced availability of smaller sizes, and mistakes in color and product offerings.

The company had to quickly withdraw its “Breezethrough” leggings from stores and its website shortly after a July launch due to customer complaints regarding fit, material, and seams, leading to fewer new options for women’s bottoms.

“For 2025, we are fast-tracking new styles within performance, shorts, tops, and tracksuits,” said CEO Calvin McDonald during a post-earnings call. “We are optimistic that we will begin to see the benefits of these strategies over the upcoming quarter.”

Lower promotional activities and strict cost management contributed to an 80 basis point increase in gross margin for the quarter.

Lululemon’s stock has dropped about 14% in the last three months as investors anticipated a forecast reduction. The company has lost nearly half of its value this year.

Comparable sales increased by 2%, but fell short of the expected 6.05% rise, fueled by a 3% decrease in sales in the Americas. However, comparable sales surged by 21% in China.

Jefferies analyst Randy Konik noted, “Athleisure spending continues to wane overall, but we have seen Alo and Vuori gaining market share against Lulu.”

The company now expects fiscal 2024 net revenue between $10.38 billion and $10.48 billion, reduced from a prior forecast of $10.70 billion to $10.80 billion. It anticipates earnings of $13.95 to $14.15 per share, down from its previous forecast of $14.27 to $14.47.

In the second quarter, Lululemon reported earnings of $3.15 per share, surpassing LSEG estimates of $2.93.