SynopsisLululemon shares dropped significantly after the company lowered its full-year sales forecast. The sportswear maker's signature leggings business saw a notable sales decline.

Competitors like Alo and Vuori are gaining market share in athleisure. New CEO Heidi O' Neill faces challenges in regaining customer relevance and sales growth.

The company has financial flexibility for a potential operational realignment and cost adjustments. comLululemon Athletica is about to get a new CEO, but investors are already questioning how quickly she can fix a business whose problems now appear deeper than a temporary slowdown.

Shares of the sportswear maker fell about 20% on Friday after Lululemon cut its full-year forecast for the second time, raising concerns that Heidi O’Neill will face a prolonged turnaround when she takes charge on September 8. The stock was trading around $100, near levels last seen in 2018, and is down sharply this year.

5 billion from Lululemon’s market value. The pressure is particularly acute in the company’s signature leggings business.

Sales of leggings fell about 20% in the second quarter, as shoppers increasingly moved towards looser-fitting silhouettes. 9% in August, according to M Science data cited by Reuters.

Meanwhile, rivals are gaining ground. “Lulu is a powerful brand but an overstretched one,” Guggenheim analyst Simeon Siegel said.

The challenge for O’Neill is therefore not simply to reignite sales, but to persuade customers that Lululemon can once again produce styles they want to wear. “We remain committed to the category (leggings), but there are shifts occurring with guests looking for away from body silhouettes,” interim CEO Meghan Frank said on Thursday’s post-earnings call.

Product missteps have compounded the problem. “The rot has now set quite deeply in Lululemon and the market is very competitive, so this is not going to be an overnight turnaround,” GlobalData managing director Neil Saunders said.

The financial strain is also becoming harder to ignore. At least 12 brokerages lowered their price targets following the latest results, with analysts questioning a cost structure that remains geared towards expansion even as sales weaken.

“I think the store expansion will slow down,” Morningstar analyst David Swartz said, according to Reuters, adding that cost cuts, management changes and a possible operational “realignment” can be expected. O’Neill’s background at Nike could give Lululemon an advantage.