Lululemon profit falls; cuts outlook citing disappointing product, bad buzz
Lululemon Athletica’s first-quarter profit declined as it dealt with several challenges, including disappointing product launches, “negative commentary in the media” and its ongoing sales slump in its biggest market.
The athleisure retailer, which managed to beat Wall Street expectations, lowered its full-year guidance and issued a weak outlook for the current quarter.
“More recently, we have been navigating headwinds that have led us to adjust our outlook for the full year,” stated CFO and interim CEO Meghan Frank. “We have assessed the business and are taking additional actions to reposition where needed and further strengthen our product engine.”
Frank, who has served as interim CEO since Calvin McDonald stepped down in January, is due to turn the company’s reins over to Heidi O’Neill in September. O’Neil is a 27-year Nike veteran.
On the earnings call, Frank said the company saw headwinds and moderating sales trends towards the end of the first quarter and as it entered the second.
“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,” she told analysts. “And second, not all of our product launches have met our expectations.”
As to the negative commentary, Frank referenced the proxy battle between Lululemon and company founder Chip Wilson, who has been outspoken in his criticism of the company. The two companies ended their feud at the end of May, with the retailer agreeing appoint three new directors. Wilson, among other things, has agreed not to criticize the company publicly or privately for about a year and a half.
In addition, Texas Attorney General Ken Paxton launched an investigation into the potential presence of PFAS, or “forever chemicals,” in Lululemon styles, reported WWD.
“These stories have died down and subsided,” Frank said on the call. “But we have not yet seen a return to our pre-disruption trend."
First Quarter
Lululemon reported net income of $195 million, or $1.69 per share, for the quarter ended May 3, compared with $314.6 million, or $2.60 per share, in the year-ago period. Analysts had expected earnings of $1.68 per share.
First-quarter net revenue rose 4% to $2.47 billion, topping estimates of $2.43 billion. Americas net revenue decreased 3%, while international net revenue increased 22%.
Comparable sales grew 1%, with a 13% rise in international markets. Comp sales fell 5% in the Americas, marking the fifth straight quarter of declines.
"We experienced a solid start to 2026 as our teams executed with speed, agility and discipline," Frank said in the earnings statement. "Our work to drive improvements in North America resulted in some positive signals in the quarter, including a sequential improvement in full-price sales. More recently, we have been navigating headwinds that have led us to adjust our outlook for the full year. We have assessed the business and are taking additional actions to reposition where needed and further strengthen our product engine. We remain confident in our path forward."
Gross margin fell 4.1 percentage points to 54.2% in the quarter. Lululemon attributed the decline primarily to tariffs and discounts. It expects gross margin to fall by another 4.1 percentage points during the current quarter, driven by higher tariffs and store investments.
On the earnings call, Frank said the company expects markdowns to improve modestly year over year in the second half, but the "slower expected top line trends in Q2 will necessitate additional seasonal clearance.”
For 2026, the company now expects net revenue to be in the range of $11.000 billion to $11.150 billion, representing a decline of 1% to 0%. Diluted earnings per share are now expected to be in the range of $10.95 to $11.15 for the year, down from its previous estimate of $12.10 to $12.30 per share.
For the current quarter, Lululemon expects net revenue to be in the range of $2.450 billion to $2.475 billion, representing a decline of 3% to 2%. Diluted earnings per share are expected to be in the range of $1.76 to $1.81 for the quarter.
The company ended the quarter with 816 stores.
