Lululemon Lowers Full-Year Forecast

Lululemon Athletica is facing renewed pressure after cutting its fiscal 2026 guidance and issuing a weaker-than-expected outlook for the current quarter.

Management now expects full-year revenue to range between $11.0 billion and $11.15 billion, down from its previous forecast of $11.35 billion to $11.50 billion. The company also lowered its earnings outlook to between $10.95 and $11.15 per share, significantly below its prior guidance of $12.10 to $12.30 per share.

The disappointing forecast sent shares down roughly 11% in after-hours trading, extending the stock’s decline to approximately 40% year-to-date.

Negative Publicity and Product Launches Weigh on Sales

Interim Chief Executive Officer Meghan Frank said customer traffic weakened toward the end of the quarter due to increased negative publicity and product launches that failed to resonate with shoppers.

According to management, criticism surrounding the company’s proxy battle with founder Chip Wilson, along with questions regarding certain product materials, contributed to softer sales trends and reduced consumer engagement.

While Frank noted that much of the negative media attention has faded, customer traffic has yet to return to pre-disruption levels.

Earnings Beat Expectations Despite Challenges

Despite the lowered outlook, Lululemon exceeded Wall Street expectations during the fiscal first quarter ended May 3.

The company reported earnings per share of $1.69, slightly ahead of analyst expectations of $1.68. Revenue reached $2.47 billion, topping estimates of $2.43 billion, while comparable sales increased 1%, outperforming expectations for 0.4% growth.

However, net income fell sharply to $195 million from $314.6 million in the same period last year, highlighting the profitability challenges facing the retailer.

Revenue increased 4% year-over-year, but investors remained focused on the company’s deteriorating margins and weaker outlook.

North America Continues to Struggle

The company’s largest market remains its biggest challenge.

Comparable sales in the Americas declined 5% during the quarter, marking the fifth consecutive quarter of declines in the region.

Management expects the weakness to continue, forecasting low-double-digit percentage sales declines during the current quarter and high-single-digit percentage declines for the full fiscal year.

Consumer spending pressures, reduced traffic, and increased promotional activity continue to weigh on the North American business.

International Markets Drive Growth

While domestic performance remains weak, international markets continue to provide strong momentum.

During the quarter, international revenue increased 22%, while international comparable sales rose 13%.

China remains a key growth engine, with management forecasting mid-to-high teens percentage growth during the current quarter and approximately 20% growth for the full year.

The company continues to rely on international expansion to offset softness in its core North American market.

Margin Pressure Remains Significant

Profitability remains under pressure as tariffs, markdowns, and operating costs weigh on results.

Gross margin declined 4.1 percentage points to 54.2% during the quarter. Management attributed the decline primarily to tariffs, which reduced margins by 2.8 percentage points, along with higher discounting activity.

Lululemon expects gross margin to decline another 4.1 percentage points in the current quarter as tariff-related costs and investments in stores continue to impact profitability.

While management expects to offset most tariff impacts by the end of the year, near-term margin pressure is expected to persist.

Leadership Transition Underway

Lululemon recently named former Nike executive Heidi O’Neill as its next Chief Executive Officer, though she will not officially take over until September.

Investors are hopeful her experience building Nike’s women’s business and improving product innovation cycles can help restore growth and strengthen the company’s competitive position.

Management also highlighted progress in reducing product lead times from 18-24 months to approximately 15-16 months, with a long-term target of 12-14 months to improve responsiveness to consumer demand.

Outlook

Lululemon’s latest results underscore the challenges facing the premium athletic apparel retailer as it works to restore growth, improve product performance, and rebuild profitability.

While international markets continue to perform well and a new CEO prepares to take the helm, the company must still address persistent weakness in North America and ongoing margin pressures before investor confidence can fully recover.