Lululemon Athletica’s Interim Co-CEO and CFO, Meghan Frank, said the company’s priorities are straightforward: Strengthen performance in North America while continuing to expand the global growth engine.

Frank said the company saw encouraging signs in Q1 that reinforce it is moving in the right direction but faced a few headwinds as the calendar transitioned to the second quarter, revealing a moderating sales trend.

“Based on our early analysis, there are two key factors impacting our trend,” Frank highlighted. “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. And second, not all of our product launches have met our expectations.”

While she said the brand has had several successful launches so far this year, others have not performed as well as Q2 did and have not generated the anticipated guest (consumer) response.

“Taken together, these factors impacted performance and are reflected in our updated guidance,” Frank said. “I want to emphasize that we are not sitting still, and we are moving with urgency to make the necessary adjustments to reaccelerate momentum, particularly in North America.”

Frank specifically called out the brand’s New Look of Yoga campaign, which she said did not drive top-line results in line with expectations.

“As part of that campaign, we featured away-from-body styles across our Align and Groove franchises,” she explained. “These styles were met with good guest response, but so far, the campaign hasn’t had the expected halo effect on other areas of our assortment.”

She said they are pleased with their overall product pipeline and will introduce in Q2 more warm-weather styles across some of the brand’s key focus activities, including run, tennis, golf, and lifestyle offerings.

“To help improve the sales trend, we are leaning into our chase capabilities now and over the balance of the year,” Frank continued. “As we discussed on prior calls, our faster chase times improve our ability to read and react to guest demand trends and get back into certain strong performing styles more quickly. We are chasing 20 percent more volume this year relative to last year, and we see this as an important capability going forward.”

She said that with inventory units down approximately 4 percent, when they see strong guest reaction to new styles, they can get back into them more quickly, which they expect can help accelerate brand momentum.

“We have also reduced our mainline product development process from 18 to 24 months to 15 to 16 months, and we are working to further reduce it down to 12 to 14 months,” Frank added. “Our product teams are focused on bringing new innovations to our guests, updating our iconic franchises and leveraging our increased speed-to-market capabilities to better anticipate, meet and fuel demand. I also want to reiterate that product quality is foundational to our brand, and we will continue to lean into this principle and enduring strength of Lululemon.”

Andre Maestrini, interim co-CEO, president, and chief commercial officer, said he was encouraged that the company experienced sequential improvement in full-price sales compared with the 2025 fourth quarter.

“In Q2, based on recent sales trends, our guidance assumes higher levels of seasonal clearance, but looking forward, driving full price sales remains a primary focus,” he said.

First Quarter Summary
Total first quarter net revenue rose 4 percent year-over-year (y/y), or an increase of 2 percent in constant-currency (cc) terms, to $2.5 billion. Comparable sales rose 1 percent in reported terms but decreased 2 percent for the quarter in constant currency terms.

North America revenue decreased 3 percent (-4 percent cc) y/y in Q1. Comparable sales were down 6 percent.

  • Canada revenue reportedly decreased 3 percent (-6 percent cc) y/y.
  • U.S. revenue decreased 4 percent y/y.

“Looking ahead, we have several exciting events planned across North America, including our yoga summer series,” Maestrini offered. “We’ll kick it off with an exclusive New York City event and follow up with free yoga classes throughout the summer, which will serve tens of thousands of guests around the region.”

He also shared in-store strategies to elevate the shopping experience.

“When looking at our store fleet in North America, you can already see several enhancements,” he said. “These include: first, a less dense presentation of products featuring 15 percent fewer SKUs, which allows us to better highlight new styles and innovation. Second, a sharper focus on merchandising by performance and lifestyle products, which allows for improved storytelling, better visual merchandising and makes the store easier to navigate and shop. And third, a significant reduction in markdowns, which allows the guest to focus more on our new and full price offerings and contribute to our premium shopping experience.”

Maestrini also said consumers will see further SKU reductions, more curated assortments based on local taste and preferences, new fixture packages and updated imagery and mannequins.

 International net revenue increased 22 percent (+16 percent cc) year-over-year.

China Mainland revenue increased 30 percent (+23 percent cc), with comparable sales increasing 13 percent. The shift of the Chinese New Year into Q1 reportedly added 8 percentage points to the quarter’s growth rate.

“In China, we had a strong start of the year, supported by successful product and brand activations during the Chinese New Year run and tennis campaigns, but experienced a slowing of momentum towards the end of Q1 as we saw spikes of negative commentary, which has now subsided,” Maestrini explained. “The team is focused on building brand awareness and distinction through our mindful performance position and community activation.”

In yoga, Maestrini said one of the most powerful examples of this took place just a few days ago in Beijing on the Great Wall of China (pictured lead image) where more than 2,000 guests and 70 ambassadors practiced yoga at the flagship event that launched a series of global activations.

“And beginning in late June through August, we will host our sixth annual Summer Sweat Games,” he continued. “This is another pinnacle run and train activation our China team has designed to engage our community across the country, culminating in a national championship in Hangzhou.

For Q2, he said they expect sales to increase in the mid- to high teens, and the company continues to expect approximately 20 percent growth for the year, “demonstrating the ongoing momentum in the business in the China Mainland.”

Rest of World segment revenue increased by 13 percent or 9 percent in constant currency, with comparable sales increasing 1 percent.

Maestrini said they remain pleased with the business in APAC and EMEA. However, he did say they have seen some disruption in their Middle East franchise business due to the conflict in Iran and have also seen some softer tourism in Europe and Japan.

“We view these as temporary, and we remain excited for our brand’s potential in both APAC and EMEA,” he said. “With the help of our franchise partner, we recently opened the first location in Greece and plans are well underway to open in India later this year.”

Channel Summary

  • Store channel total sales increased 3 percent y/y in the first quarter.
    • The company ended the quarter with 816 stores globally.
    • Square footage increased 11 percent versus the prior year, reportedly driven by the addition of 46 net new Lululemon stores since Q1 of 2025.
    • Lululemon opened 5 net-new stores and completed 6 optimizations during the quarter.
  • Digital channel revenues increased 4 percent y/y and contributed $1 billion of top-line revenue, equating to 40 percent of total revenue.

 Category Summary

  • Men’s revenue increased by 7 percent year over year.
  • Women’s increased by 4 percent.
  • Accessories and other items declined by 1 percent.

Profitability and Expenses
Gross profit for the first quarter was $1.34 billion, or 54.2 percent of net revenue, compared to 58.3 percent in Q1 2025. The 410 basis-point decline was reportedly driven primarily by:

  • A 330 basis-point decline in overall product margin driven predominantly by tariff impact and markdowns.
  • Tariffs had a gross negative impact of 280 basis points in the quarter, offset by 100 basis points related to LULU’s enterprise efficiency initiatives.
  • Markdowns increased 40 basis points y/y.
  • Deleverage on fixed costs was 140 basis points, driven by ongoing investments in the store fleet, and
  • Regional mix and foreign exchange had a 60-basis-point favorable impact.

Frank said the company’s approach to SG&A continues to be grounded in prudently managing expenses while strategically investing in plans and strategies to improve sales trends in North America, strengthen the business’s foundation, and position Lululemon for long-term growth.

SG&A expenses were approximately $1.06 billion for the first quarter, or 42.9 percent of net revenue, compared to 39.8 percent of net revenue for the Q1 period last year. The 310 basis-point increase y/y was attributed to expenses that were reduced last year but layered back this year, including store labor hours and incentive comp, timing of certain brand activations, and costs related to the proxy contest. These were said to be partially offset by ongoing initiatives to prudently manage costs across the enterprise.

Operating income for the quarter was $277 million, or 11.2 percent of net revenue, compared to 18.5 percent of net revenue in Q1 2025.

Tax expense for the quarter was $91 million, or 31.8 percent of pretax earnings, compared to an effective tax rate of 30.2 percent in the year-ago Q1 period. The increase reportedly reflects lower stock-based compensation deductions than in the prior-year quarter.

Net income for the quarter was $195 million, or $1.69 per diluted share, compared to $2.60 per share for the first quarter of 2025.

Capital expenditures were approximately $127 million in the quarter, compared with approximately $152 million in the first quarter last year. “[The] Q1 spend relates primarily to investments to support business growth, including our multiyear distribution center project, store capital for new locations, relocations and renovations and technology investments,” Frank shared.

Balance Sheet Summary
Lululemon ended the quarter with $1.5 billion in cash and cash equivalents and nearly $600 million of available capacity under its revolving credit facility.

Inventory at the end of Q1 was $1.7 billion, an increase of 2 percent y/y on a dollar basis. On a unit basis, inventory decreased approximately 4 percent year-over-year.

“The difference between dollar inventory growth and unit inventory growth relates predominantly to higher tariff rates relative to last year and foreign exchange,” the CFO noted.

The company reportedly repurchased approximately 2.2 million shares at an average price of $165.

Second Quarter Guidance
Guidance for Q2, which considers the business trends Frank spoke to earlier in her prepared remarks

LULU expects revenue in the range of $2.45 billion to $2.475 billion in the second quarter, representing a decline of 2 percent to 3 percent year-over-year.

  • North America is expected to decline in low double digits y/y, with the U.S. also in that range.
  • China Mainland is expected to increase in the mid- to high teens; and
  • Rest of World is forecast to increase in the high singles to low double digits for the period.

The company expects to open approximately 13 net new company-operated stores and complete 13 optimizations.

Gross margin is forecast to decrease approximately 410 basis points y/y in the second quarter. Frank said the decrease will be driven predominantly by higher tariff costs, ongoing investments in store openings and optimizations and the company’s distribution network.

“We expect increased tariffs to have a gross negative impact of approximately 150 basis points, with offsets of approximately 100 basis points,” Frank added. “We expect markdowns to be up approximately 50 basis points versus last year. While we continue to expect markdowns to improve modestly year-over-year in the second half, the slower-than-expected top-line trends in Q2 will necessitate additional seasonal clearance.”

The SG&A rate is expected to deleverage by 500 basis points relative to Q2 2025. Frank said the increase will be driven in part by deleverage associated with lower sales than initially expected, discrete costs related to the Board proxy contest, increased marketing and expenses that were reduced last year, but are layering back this year, including store labor hours. She said they will continue to invest strategically in growth initiatives and IT infrastructure.

Operating margin for Q2 is expected to be approximately 11.6 percent of net revenue versus 20.7 percent in Q2 2025.

Earnings per share (EPS) in the second quarter are forecast to be in the range of $1.76 to $1.81 per share, versus EPS of $3.10 in the year-ago quarter.

The effective tax rate in Q2 is forecast to be approximately 30 percent.

Full Year 2026 Guidance
LULU now expects 2026 full-year revenue to be in the range of $11.00 billion to $11.15 billion, or flat to down 1 percent relative to 2025.

  • North America is expected to be down in the high single digits for the year, with the U.S. slightly lower and Canada better.
  • China Mainland revenue is expected to be up approximately 20 percent.
  • Rest of World revenue is expected to increase in the mid-teens.

“Globally, we now expect to be closer to the low end of the 40 to 45 range for net new company-operated stores in 2026 and continue to expect to complete approximately 35 optimizations,” Frank added. “This will contribute to overall square footage growth in the low double digits.”

New store openings in 2026 will include approximately 10 to 15 stores in North America, including eight in Mexico and 25 to 30 in international markets, with the majority of those planned for China.

“While we are taking a disciplined approach to capital spending and looking at all real estate deals on a case-by-case basis, we continue to see good returns from new store openings and store expansions as these strategies contribute to an improved shopping experience for existing guests, new guest acquisition, building brand awareness and community engagement,” the CFO said.

Full-year gross margin is forecast to decrease approximately 90 basis points y/y, driven predominantly by deleverage of fixed costs and ongoing investments in new store openings, optimizations, and the distribution center network.

“We expect markdowns for the full year to be flat to slightly improved and tariffs to have a gross impact of 30 basis points, of which we expect to be able to offset almost all of it,” Frank suggested. “When looking at tariffs for the full year, our guidance now assumes an incremental rate of 10 percent for Q2. This is down from our prior assumption of approximately 20 percent.”

For the back half of 2026, LULU continues to assume a 20 percent incremental rate. Frank said that guidance assumes no recovery of the tariffs paid under IEEPA, even after participation in the refund process.

SG&A for the full year now assumes deleverage of approximately 290 basis points versus 2025, including incentive comp, store labor hours and continued strategic investments in the business to support future growth.

These investments reportedly include market expansion, improving the guest experience by enhancing our omni capabilities and growing brand awareness.

“As mentioned, we are absorbing additional costs relative to last year as we layered back on certain expenses and have one-time costs associated with the proxy contest,” the CFO noted. “In addition, based on recent trends, we are increasing our marketing spend to drive brand heat.”

Full-year operating margin is now expected to decrease by approximately 380 basis points versus last year.

The full-year 2026 effective tax rate is expected to be approximately 30 percent, compared with the 2025 effective tax rate of 29.5 percent.

Diluted earnings per share are now expected to be in the range of $10.95 to $11.15, versus EPS of $13.26 in 2025. Frank said EPS guidance excludes the impact of any future share repurchases.

When looking at inventory, LULU now expects dollar growth in the low- to mid-single digits through 2026, with units slightly down.

The company now expects capital expenditures to be approximately $700 million to $720 million for full-year 2026. The spend is said to reflect investments to support business growth, including capital for new locations, relocations and renovations, DC and technology investments.

“We have approximately $1 billion remaining on our share repurchase program, which we will continue to utilize,” Frank said. “Share repurchases remain our preferred method of returning cash to shareholders, and we continue to expect our repurchase levels in 2026 to be in line with 2025,” she noted.

In closing her prepared remarks, Frank said the company will remain agile as it takes actions to drive performance and engage with guests.

“We are pleased that some of the recent distractions have been removed, and we remain sharply focused on returning the business to a position of strength in North America by chasing into strong performing styles, investing more in brand moments to engage with and excite our guests and continuing to execute on our action plan,” Frank concluded. “There is significant potential ahead for Lululemon, and we are taking the steps necessary to realize it.”

Image courtesy Lululemon Athletica, Inc.