lululemon athletica Q1 Earnings Call Highlights

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lululemon athletica (NASDAQ:LULU) reported modest first-quarter revenue growth but lowered its fiscal 2026 outlook, citing softer recent sales trends, negative media and social commentary around the brand, and product launches that did not meet expectations.

Meghan Frank, interim co-CEO and chief financial officer, said the company remains focused on strengthening performance in North America while continuing to expand internationally. She said lululemon saw “encouraging signs” in the first quarter but faced headwinds as it exited the period and entered the second quarter.

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“Based on our early analysis, there are two key factors impacting our trend,” Frank said. “First, we experienced spikes of negative commentary in the media and on social channels with regard to our brand, which had an impact on traffic and overall top-line performance. Second, not all of our product launches have met our expectations.”

North America Weakness Offsets International Growth

For the first quarter, total net revenue rose 4%, or 2% in constant currency, to $2.5 billion. Comparable sales declined 2%.

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The regional split showed continued pressure in North America and strength in China Mainland:

• North America revenue declined 3%, or 4% in constant currency, while comparable sales fell 6%.
• U.S. revenue declined 4%, while Canada revenue fell 3%, or 6% in constant currency.
• China Mainland revenue increased 30%, or 23% in constant currency, with comparable sales up 13%.
• Rest of world revenue rose 13%, or 9% in constant currency, with comparable sales up 1%.

Frank said the shift in Chinese New Year into the first quarter added eight percentage points to China Mainland’s growth rate. André Maestrini, interim co-CEO, president and chief commercial officer, said China had a strong start to the year, supported by product and brand activations, but momentum slowed toward the end of the quarter as negative commentary increased. He said that commentary has since subsided.

Maestrini said the company remains pleased with its APAC and EMEA businesses, though it has seen some disruption in its Middle East franchise business because of the conflict in Iran and softer tourism in Europe and Japan. He characterized those issues as temporary.

Product Strategy and Brand Investments Take Center Stage

Management said improving product performance is a core part of lululemon’s plan to rebuild momentum. Frank said updates to key run franchises such as Fast and Free, Swiftly and Metal Vent received a good guest response in the first quarter. She also cited Daydrift and Define as standouts, pointing to expanded silhouettes and elevated colors.

However, Frank said the company’s “new look of yoga” campaign did not drive the top-line results management expected. The campaign featured away-from-body styles across the Align and Groove franchises. While those styles received a good guest response, Frank said the campaign has not produced the anticipated halo effect across the broader assortment.

Frank said lululemon is increasing its use of chase capabilities, allowing the company to respond more quickly to demand for strong-performing styles. She said the company is chasing 20% more volume this year than last year and has reduced its mainline product development process from 18 to 24 months to 15 to 16 months, with a goal of reaching 12 to 14 months.

In response to an analyst question, Frank said lululemon had aimed to increase newness in the assortment from 23% last year to 35% this year and currently sits at about 30%. She said recent performance challenges are affecting all areas of the business from a product perspective.

The company also plans to increase marketing investment. Frank said marketing spend is now expected to be approximately 10% to 15% above last year, in a range of 6% to 6.5% of sales compared with 5.6% last year. Planned initiatives include yoga events, the return of the SeaWheeze half marathon in Vancouver, a U.S. Open activation, collaborations, grassroots community events, press and partner experiences, and new social content featuring elite athletes.

Margins Pressured by Tariffs, Markdowns and Costs

Gross profit in the first quarter was $1.34 billion, or 54.2% of net revenue, down from 58.3% a year earlier. Gross margin declined 410 basis points, driven primarily by a 330-basis-point decline in product margin, which Frank attributed predominantly to tariffs and markdowns.

Tariffs had a gross negative impact of 280 basis points in the quarter, partially offset by 100 basis points related to enterprise efficiency initiatives. Markdowns increased 40 basis points. Fixed-cost deleverage reduced margin by 140 basis points, while foreign exchange had a 60-basis-point favorable impact.

SG expenses were approximately $1.06 billion, or 42.9% of net revenue, compared with 39.8% a year earlier. Frank said the increase reflected costs that were reduced last year and added back this year, including store labor hours and incentive compensation, as well as the timing of brand activations and costs related to the proxy contest.

Operating income was $277 million, or 11.2% of net revenue, compared with 18.5% a year earlier. Net income was $195 million, or $1.69 per diluted share, down from $2.60 in the year-ago quarter.

Guidance Cut for Second Quarter and Full Year

For the second quarter, lululemon expects revenue of $2.45 billion to $2.475 billion, representing a decline of 2% to 3%. The company expects North America revenue to decline in the low double digits, with the U.S. also in that range. China Mainland is expected to grow in the mid- to high teens, while rest of world is expected to rise in the high single to low double digits.

Second-quarter gross margin is expected to decline about 410 basis points from the prior year, driven primarily by higher tariff costs, store openings and optimizations, and distribution network investments. The company expects second-quarter earnings per share of $1.76 to $1.81, compared with $3.10 a year earlier.

For fiscal 2026, lululemon now expects revenue of $11 billion to $11.15 billion, flat to down 1% from 2025. North America revenue is now expected to decline in the high single digits, while China Mainland is still expected to grow approximately 20% and rest of world is expected to grow in the mid-teens.

The company now expects fiscal 2026 diluted earnings per share of $10.95 to $11.15, compared with $13.26 in 2025. The guidance excludes any future share repurchases.

Frank said lululemon expects to be closer to the low end of its 40 to 45 net new company-operated store target for 2026, while completing approximately 35 optimizations. The company expects capital expenditures of $700 million to $720 million.

Leadership Transition Ahead

Frank also addressed the company’s leadership transition, saying she and Maestrini are “excited” to welcome incoming CEO Heidi O’Neill in September. Frank said O’Neill has “a true passion for the Lululemon brand,” experience driving growth and transformation, and a strong understanding of product excellence.

Asked whether naming a new CEO changes the company’s current approach, Frank said management remains focused on its action plan and on restoring the full-price health of the business. “We’re really trying to set the business up so that Heidi steps in, hits the ground running, and builds on top of the actions that are already underway,” she said.

About lululemon athletica (NASDAQ:LULU)

lululemon athletica inc. is a design-focused athletic apparel company known for performance-oriented apparel, footwear and accessories. The company's product portfolio centers on technical apparel for yoga, running, training and everyday active lifestyle use and includes tops, bottoms, outerwear, underwear, bags and a growing footwear assortment. lululemon emphasizes fabric science and product innovation, marketing garments that blend performance features with lifestyle styling.

Products are developed in-house and produced through a network of third-party manufacturers.

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