#Lululemon Reports Earnings Decline and Lowers Guidance
Lululemon Athletica Inc. (NASDAQ: LULU) reported a 35% decline in diluted earnings per share for the first quarter of fiscal 2026 and cut its full-year revenue and earnings guidance, as declining Americas sales and rising tariff costs weighed on profitability.
The Vancouver, British Columbia-based athletic apparel and footwear company posted net revenue of $2.47 billion for the quarter ended May 3, 2026, up 4% from the prior-year period, or 2% on a constant dollar basis. International markets drove the gain while the Americas segment contracted.
#Americas Sales Decline as International Business Offsets Weakness
Americas net revenue fell 3%, or 4% on a constant dollar basis, to $1.6 billion, representing 66% of total revenue compared to 71% in the first quarter of fiscal 2025. Americas comparable sales declined 5%, or 6% on a constant dollar basis.
China Mainland net revenue rose 30%, or 23% on a constant dollar basis, to $478.4 million. Comparable sales in China Mainland increased 20%, or 13% on a constant dollar basis.
Rest of World net revenue increased 13%, or 9% on a constant dollar basis, to $372.0 million, with comparable sales up 5%, or 1% on a constant dollar basis.
#Tariffs and Higher Costs Drive Gross Margin Lower
Gross profit declined 3% to $1.3 billion, with gross margin contracting 410 basis points to 54.2% from 58.3% in the year-prior quarter.
The company said the margin decline reflected a 270 basis point net decrease in product margin, which included a 330 basis point drop driven by higher tariffs and markdowns, partially offset by higher pricing, lower product costs, and a 60 basis point favorable foreign currency impact. Higher occupancy and depreciation costs contributed a further 140 basis point drag.
Selling, general, and administrative expenses rose to $1.1 billion, or 42.9% of net revenue, from $942.9 million, or 39.8%, in the prior year. The company attributed the increase to higher employee costs, brand activations, and costs related to a proxy contest.
Operating income fell 37% to $276.9 million. Operating margin contracted 730 basis points to 11.2%.
"We experienced a solid start to 2026 as our teams executed with speed, agility, and discipline," Meghan Frank, Interim Co-CEO and Chief Financial Officer, said in the earnings release. "More recently, we have been navigating headwinds that have led us to adjust our outlook for the full year."
#Full-Year Revenue Guidance Cut to a Decline
For the full year, lululemon now expects net revenue in the range of $11.0 billion to $11.15 billion, representing a decline of 1% to flat. Full-year diluted EPS is projected at $10.95 to $11.15, on an assumed tax rate of approximately 30%. The guidance excludes any potential IEEPA tariff refunds or future share repurchases.
For the second quarter of fiscal 2026, the company expects net revenue of $2.45 billion to $2.475 billion, a decline of 3% to 2%, with diluted EPS of $1.76 to $1.81.
lululemon ended Q1 with $1.5 billion in cash and cash equivalents and $593.6 million in available revolving credit capacity. The company repurchased 2.2 million shares for $358.3 million during the quarter and ended the period with 816 company-operated stores.
The company competes in the premium athletic apparel market alongside brands including Nike and Under Armour. Management stated it would continue efforts to improve North America performance and expand internationally, though tariff exposure, macroeconomic conditions, and shifts in consumer sentiment remain risks to the revised full-year outlook.