Key Takeaways
- Lululemon lowered its 2026 sales and profit forecasts.
- Brand criticism and weak product launches hurt demand.
- International growth could not offset North American declines.
Athletic apparel retailer Lululemon lowered its full-year sales and profit outlook Thursday after reporting weaker-than-expected growth prospects, citing negative media attention, disappointing product launches, and ongoing pressure in its North American business.
Lululemon said it now expects fiscal 2026 revenue between $11 billion and $11.15 billion, down from its previous forecast of $11.35 billion to $11.50 billion. The company also reduced its earnings guidance and projected a weaker-than-expected second quarter despite posting first-quarter results that slightly exceeded Wall Street estimates.
North America’s weakness drives forecast cut
Interim CEO Meghan Frank said the company’s performance slowed late in the first quarter due to increased criticism surrounding the brand and underwhelming customer response to some recent product launches.
“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,” Frank told analysts during the company’s earnings call.
Frank said criticism related to the company’s recent proxy dispute with founder Chip Wilson and questions about certain product materials affected consumer sentiment. While those issues have largely subsided, she said sales trends have not returned to previous levels.
The retailer expects North American sales to decline by a low-double-digit percentage in the current quarter and by a high-single-digit percentage for the full fiscal year. Comparable sales in the Americas fell 5% during the first quarter, marking the fifth consecutive quarter of declines.
International growth fails to offset domestic challenges
Despite weakness in its largest market, Lululemon continued to post strong international growth. International revenue increased 22% during the quarter, while comparable sales rose 13%.
The company said China remains a key growth driver and expects sales in the country to increase by a mid-to-high teens percentage during the current quarter and approximately 20% for the full year.
Lululemon reported net income of $195 million, or $1.69 per share, for the quarter ended May 3, down from $314.6 million, or $2.60 per share, a year earlier. Revenue increased 4% to $2.47 billion from $2.37 billion.
The results exceeded analyst expectations of $1.68 per share in earnings and $2.43 billion in revenue, according to market data provider LSEG.
Tariffs and discounting pressure profit margins
Profitability remained a significant concern for the retailer. Gross margin fell 4.1 percentage points to 54.2%, hurt by tariffs and increased discounting.
The company said tariffs reduced margins by 2.8 percentage points during the quarter, while markdowns contributed an additional 0.4 percentage-point decline.
Lululemon expects gross margin to fall another 4.1 percentage points during the current quarter as tariff costs persist and investments in stores increase.
“While we continue to expect markdowns to improve modestly year over year in the second half, the slower expected top-line trends in Q2 will necessitate additional seasonal clearance,” Frank said.
The company has also faced leadership uncertainty in recent months. It recently settled a proxy dispute with Wilson and appointed former Nike executive Heidi O’Neill as its next chief executive officer. O’Neill is scheduled to begin her role in September.
Frank said the company continues to work on improving product development speed and reducing lead times. Lululemon has shortened product lead times from as much as 24 months to about 15 to 16 months and aims to reduce them further.
Investors reacted negatively to the outlook. Shares of Lululemon fell about 11% in after-hours trading following the earnings announcement and are down roughly 40% this year.
