Lululemon Athletica (LULU) saw its shares tumble nearly 12% in premarket trading on Friday, following the company's decision to lower its full-year profit outlook and provide second-quarter earnings guidance that fell well short of analyst expectations. The sharp decline threatened to erase more than $1.7 billion in market value, adding to a prolonged downturn that has already seen the stock lose about 63% of its value over the past year.
The athletic apparel retailer reported first-quarter results that showed a modest 4% increase in revenue to $2.5 billion, but diluted earnings per share dropped sharply to $1.69 from $2.60 in the same period last year. The company's Americas revenue declined 3% overall and 4% on a constant-currency basis, underscoring persistent weakness in its core North American market. In contrast, revenue from mainland China surged 30%, or 23% in constant dollars, highlighting a stark divergence in regional performance.
Lululemon slashed its fiscal 2026 revenue guidance to a range of $11.0 billion to $11.15 billion, representing a decline of 1% to flat growth. The company now expects diluted EPS of $10.95 to $11.15, down from its previous forecast of $12.10 to $12.30. For the second quarter, the company guided earnings per share of $1.76 to $1.81, significantly below the $2.68 consensus estimate from analysts polled by LSEG.
Profit margins also came under pressure, with gross margin contracting 410 basis points to 54.2%. Lululemon attributed the decline to higher tariffs, increased markdowns, and larger inventory provisions. The company's interim co-CEO and CFO, Meghan Frank, described the quarter as a “solid start to 2026” but acknowledged “headwinds that have led us to adjust our outlook.” She noted that the company is working to reposition segments of the business and enhance its product engine.
Interim co-CEO and chief commercial officer André Maestrini said the company still has “more work to do,” despite progress in new markets and the rollout of product capsules in training, tennis, and running. However, analysts expressed skepticism about the brand's ability to regain its footing in North America. Guggenheim Securities analyst Simeon Siegel told Reuters that Lululemon has “a strong brand, but an overstretched one,” warning that North American revenue could face further downside if the company fails to improve its product offerings and marketing message.
Lululemon's product challenges appear to be deepening. Frank told analysts that the company's yoga campaign did not generate the “expected halo effect” on other product categories, and that “negative commentary” on the brand has been a drag on sales. With revenue coming in slower than anticipated, the company plans to increase seasonal clearance activity, which could further pressure margins through discounts on older inventory.
The competitive landscape is also intensifying. Lululemon faces growing competition from upstart activewear rivals such as Alo Yoga and Vuori, which have been capturing market share among younger consumers. Investors are now closely watching incoming CEO Heidi O’Neill, a former Nike executive, who is set to take the helm in September. The leadership transition follows a proxy battle with founder Chip Wilson that concluded in May.
While there are some potential upside catalysts—including continued strength in China, possible tariff refunds, and Lululemon's $1.5 billion cash reserve—the risks remain substantial. If North American store traffic continues to decline, increased clearance activity could further squeeze margins and lead to additional downward revisions in earnings forecasts. The broader market held relatively steady, with the S&P 500 up 0.41% and the Nasdaq Composite slipping just 0.09% in the previous session, underscoring that Lululemon's troubles are company-specific.
Lululemon's brand remains strong, but investors are demanding tangible results before committing capital. The stock's premarket slide on Friday reflects a market waiting for concrete evidence of a turnaround, as the company navigates a challenging environment of shifting consumer preferences, competitive pressure, and margin erosion.
