Lululemon Athletica Inc.

Q1 total net revenue increased 4% year over year, or 2% in constant currency, to $2.5 billion; comparable sales decreased 2%. Gross profit was $1.34 billion and gross margin was 54.2% versus 58.3% in Q1 2025, a decline of 410 basis points. Operating income was $277 million, or 11.2% of revenue, versus 18.5% a year ago. Net income was $195 million, or $1.69 per diluted share, versus $2.60 last year. North America revenue fell 3% (4% in constant currency) and comparable sales fell 6%; China Mainland revenue rose 30% (23% constant currency) with comp up 13%; Rest of World revenue rose 13% (9% constant currency) with comp up 1%. The company ended Q1 with $1.5 billion in cash and cash equivalents, nearly $600 million of revolving credit capacity, and inventory of $1.7 billion, up 2% in dollars but down about 4% in units. Q1 capital expenditures were approximately $127 million, and the company repurchased about 2.2 million shares at an average price of $165. Guidance: Q2 revenue is expected at $2.45 billion to $2.475 billion, down 2% to 3%, with EPS of $1.76 to $1.81. Q2 gross margin is expected to decline about 410 basis points and SG&A rate to deleverage about 500 basis points. For full-year 2026, revenue is expected at $11.0 billion to $11.15 billion (flat to down 1%), gross margin down about 90 basis points, SG&A deleverage of about 290 basis points, operating margin down about 380 basis points, and EPS of $10.95 to $11.15. Full-year capex is expected at $700 million to $720 million.

Meghan Frank said the company is focused on restoring North America performance while continuing international growth, and that the team is moving with urgency on product, marketing, and enterprise efficiency initiatives. She pointed to stronger chase capabilities, faster product development cycles, and more brand activations as the main levers to rebuild momentum. Her tone was measured but clearly concerned about recent trends, with repeated emphasis that management is not “sitting still.”

Frank outlined the financial impact of the quarter and the updated outlook, highlighting that tariffs cut gross margin by 280 basis points in Q1, markdowns added 40 basis points of pressure, and fixed costs delevered by 140 basis points. SG&A rose to $1.06 billion, or 42.9% of revenue, partly because of store labor, incentive comp, brand activation timing, and proxy contest costs. She also cited $1.5 billion of cash, nearly $600 million of revolver capacity, $127 million of capex, and roughly $1 billion remaining on the buyback authorization; repurchases remain the preferred form of cash return, with 2026 buybacks expected to be in line with 2025.

Analysts focused on whether weaker results were driven more by product assortment changes, brand issues, or broader demand pressure. Management said the recent slowdown was mostly traffic-driven, linked to spikes in negative brand commentary across media/social channels and some product launches missing expectations, while category demand was described as relatively stable. On markdowns, they said Q2 would be the high-water mark for clearance and that full-year markdowns should improve modestly, with Q3 better than Q2 and Q4 below last year. Questions on China, SKU reductions, and full-price sales drew similar answers: China’s underlying trend is still seen at roughly 20% growth for the year, SKU cuts are meant to sharpen merchandising and lift conversion over time, and full-price sales are expected to improve gradually through the year after a mid-single-digit decline in Q2.