Lululemon cuts 2026 outlook as Q1 profit slides 35% amid weak demand

Lululemon Athletica reported Q1 earnings that missed profit expectations and cut its full-year outlook, sending shares down 12% in premarket trading.

"The product is just not compelling enough to move the sales line above the high ceiling Lululemon has bumped up against," Neil Saunders, managing director at GlobalData, said.

Net revenue rose 4% to $2.47 billion in the quarter ended April 30, but gross profit fell 3% to $1.34 billion as gross margin contracted 410 basis points to 54.2%. Diluted earnings per share came in at $1.69, down from $2.60 a year earlier. Americas comparable sales declined 6% on a constant-dollar basis, while China Mainland revenue jumped 30%.

The guidance cut signals management expects the slump to deepen before a turnaround takes hold. The company now forecasts full-year revenue of $11.00 billion to $11.15 billion, representing flat to slightly negative growth, and Q2 revenue of $2.45 billion to $2.475 billion, a decline of as much as 3%.

Metric	Actual	Prior Year	Change
Revenue	$2.47B	$2.38B	+4%
EPS	$1.69	$2.60	-35%
Gross Margin	54.2%	58.3%	-410 bps
Operating Margin	11.2%	18.5%	-730 bps

Interim co-CEO and CFO Meghan Frank cited two factors driving the deterioration: spikes of negative commentary in media and social channels that hurt traffic, and product launches that failed to generate the expected customer response. The Look of Yoga campaign, which featured Away from Body styles across the Align and Groove franchises, did not produce the anticipated halo effect on other categories, she said.

The company also faced headwinds from its months-long proxy fight with founder Chip Wilson, which added costs to SG&A expenses. Selling, general and administrative expenses rose to 42.9% of net revenue from 39.8% a year earlier, partly due to the proxy contest. Tariffs shaved 280 basis points off gross margin.

Lululemon is operating under interim leadership after former CEO Calvin McDonald stepped down in January. Incoming CEO Heidi O'Neill, a Nike veteran, is set to take the role Sept. 8. The company is accelerating product development cycles to 12 to 14 months from 18 to 24 months and has reduced SKUs by 15% in North American stores.

Competition is intensifying from newer brands including Alo Yoga and Vuori, which have gained share in the premium athleisure segment. Lululemon's stock has lost about 63% of its value over the past 12 months, giving it a market capitalization of roughly $14.4 billion.

The Q2 guidance implies a worse first half than the second half, a pattern that Guggenheim analysts led by Simeon Siegel said may not be conservative enough. "Though we believe LULU is a strong brand with a loyal customer and among the largest revenue levels of any brand in history, we believe it is simply too large and still likely over-earning," Siegel said.

The guidance cut puts pressure on O'Neill to deliver a strategic reset when she takes over in September. Investors will watch for early signs of product momentum in the back-to-school season and the holiday quarter, which together will determine whether Lululemon can stabilize its North American business.

This article is for informational purposes only and does not constitute investment advice.