Shares of Lululemon Athletica declined in extended trading Tuesday after the athletic apparel retailer issued financial projections for fiscal year 2026 that came in below analyst consensus, dampening investor sentiment despite the company delivering fourth-quarter results that exceeded expectations.
The Vancouver-based company anticipates full-year 2026 revenue in the range of $11.35 billion to $11.50 billion. It forecasts diluted earnings per share between $12.10 and $12.30. According to LSEG data cited by Reuters, these figures trail analyst estimates of $11.51 billion in revenue and $12.58 in EPS. For the current first quarter, Lululemon guided for revenue of $2.40 billion to $2.43 billion and EPS of $1.63 to $1.68.
Mixed Fourth-Quarter Performance
Lululemon reported a 1% year-over-year increase in fourth-quarter revenue, reaching $3.64 billion, which surpassed analyst forecasts. Diluted earnings per share for the quarter were $5.01, also beating estimates. Comparable sales grew by 3%.
However, the results revealed a stark geographic divergence. Revenue in the Americas, the company's largest market, decreased by 4%. In contrast, international revenue surged 17%, highlighting a growing reliance on overseas growth as domestic demand softens.
Profitability Pressures and Strategic Shifts
The company's profitability faced significant headwinds. Gross margin contracted by 550 basis points to 54.9%. Management and analysts pointed to elevated U.S. import tariffs as a primary factor pressuring margins. Inventory levels concluded the fiscal year at $1.7 billion, an 18% increase from the prior year.
Interim co-CEO Meghan Frank identified improving "full-price sales" as a critical objective, particularly within the North American business. This focus comes as the company contends with intensified competition from rivals like Nike, Alo Yoga, and Vuori, which have been aggressively expanding their activewear offerings.
Board Addition Amid Leadership Transition
In a move signaling a desire for stability, Lululemon announced that Chip Bergh, the former Chief Executive Officer of Levi Strauss & Co., has joined its board of directors. Board Chair Marti Morfitt described Bergh as an "industry leader," while Bergh himself stated it was a "pivotal time" to join the company.
Bergh is expected to stand for election at the 2026 annual shareholder meeting, filling a seat vacated by David Mussafer, who is not seeking re-election. This appointment occurs against a backdrop of corporate uncertainty. The company is actively searching for a permanent CEO following Calvin McDonald's announced departure, effective January 31. Simultaneously, founder Chip Wilson is engaged in a proxy contest, having nominated three director candidates to the board.
Challenging Market Backdrop
Lululemon's stock has faced substantial pressure, declining approximately 23% year-to-date. According to MarketWatch, shares are trading near a six-year low and have fallen almost 52% over the past twelve months. Investor concerns have mounted regarding the durability of the brand's style appeal, perceived quality issues, and an increasing dependence on promotional markdowns to move inventory.
While international sales provide a bright spot, executives are banking on new product launches and enhanced customer experiences to reignite growth. Nevertheless, persistent weakness in U.S. consumer demand, ongoing tariff-related cost pressures, and unresolved boardroom dynamics during the CEO search present formidable challenges that may extend the company's current period of operational difficulty.
