Lululemon Earnings Report
Shares fell 11% in extended trading after the company slashed its full-year guidance.
First-Quarter Results Exceed Expectations, But Profits Fall
Lululemon reported fiscal first-quarter earnings per share of $1.69, just above the analyst consensus of $1.68. Revenue came in at $2.47 billion, beating the expected $2.43 billion.
Despite the top-line beat, net income dropped sharply to $195 million, down from $314.6 million in the same period last year. Comparable sales grew 1%, better than the 0.4% analysts had predicted.
Guidance Cut Significantly
The outlook for the full fiscal year 2026 was drastically reduced:
- Full-year sales forecast lowered to $11.00–$11.15 billion from $11.35–$11.50 billion. Analysts had expected $11.48 billion.
- Full-year earnings per share guidance cut to $10.95–$11.15 from $12.10–$12.30. The consensus was $12.30.
The current quarter (Q2) outlook was even more stark:
- Q2 sales expected between $2.45–$2.48 billion versus the $2.60 billion consensus.
- Q2 earnings per share forecast at $1.76–$1.81, far below the $2.68 analysts expected.
Reasons for the Decline
Interim CEO Meghan Frank attributed the downturn to "negative commentary in the media" and product launches that "did not meet expectations."
She specifically cited a proxy contest with founder Chip Wilson and questions about product composition. While Frank noted these negative stories have subsided, the company has not yet returned to pre-disruption trends.
Regional Performance: Americas Struggling, International Growing
In the Americas, comparable sales fell 5% in Q1—marking the fifth consecutive quarterly decline.
The picture is starkly different overseas:
- International sales grew 22%, with comparable sales up 13%.
- North America sales expected to decline low-double digits in Q2 and high-single digits for the full year.
- China sales expected to rise mid-to-high teens in Q2 and about 20% for the full year.
Profitability Takes a Hit
Gross margin fell 4.1 percentage points to 54.2%, worse than expected. Two key factors drove the decline:
- Tariffs impacted margins by 2.8 percentage points.
- Discounting increased by 0.4 percentage points.
For the full year, gross margin is expected to decline 0.9 percentage points.
Strategic Actions
Lululemon is taking steps to turn the business around:
- Hired former Nike executive Heidi O'Neill as CEO, effective September.
- Settled a proxy battle with founder Chip Wilson.
- Reducing product lead times from 18–24 months to 15–16 months, with a target of 12–14 months.
Market Reaction
Lululemon stock has declined about 40% year-to-date as of Thursday's close.
The extended trading drop of 11% underscores investor concern over the steep guidance cuts and ongoing challenges in the Americas market.