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 circ…