Lululemon Athletica (LULU) delivered a mixed earnings report for the first quarter of fiscal 2026—topping revenue and profit expectations, yet triggering a sharp selloff as weakened guidance and soft U.S. sales spooked investors.
Muted Growth Despite Beating Expectations
Lululemon reported earnings per share of $2.60 for the quarter ended May 4, narrowly edging out Wall Street estimates of $2.58. Revenue climbed 7% year over year to $2.37 billion, slightly above consensus. Gross margin expanded 60 basis points to 58.3%, bolstered by lower product costs and supply chain efficiencies.
Yet, the standout concern was the disappointing 1% increase in comparable sales—well below the 4.1% growth analysts had forecast. The lackluster figure revealed mounting pressure in key markets, most notably North America, which accounts for roughly three-quarters of Lululemon's revenue.
Despite the modest sales gain, Lululemon repurchased $430 million in stock and ended the quarter with $1.3 billion in cash, reinforcing its long-term confidence. Still, those bright spots did little to offset concerns about future profitability.
Lululemon reported earnings per share of $2.60 for the quarter ended May 4, narrowly edging out Wall Street estimates of $2.58. Revenue climbed 7% year over year to $2.37 billion, slightly above consensus. Gross margin expanded 60 basis points to 58.3%, bolstered by lower product costs and supply chain efficiencies.
Yet, the standout concern was the disappointing 1% increase in comparable sales—well below the 4.1% growth analysts had forecast. The lackluster figure revealed mounting pressure in key markets, most notably North America, which accounts for roughly three-quarters of Lululemon's revenue.
Despite the modest sales gain, Lululemon repurchased $430 million in stock and ended the quarter with $1.3 billion in cash, reinforcing its long-term confidence. Still, those bright spots did little to offset concerns about future profitability.
Americas Slowdown Raises Investor Alarms
Shares of Lululemon tumbled more than 20% in after-hours trading Thursday and opened Friday down 20%, wiping out nearly $8 billion in market value and marking the stock’s worst single-day drop since March 2020.
While international markets like China showed strong double-digit growth—up 22% in constant currency—sales in the Americas rose just 3%, with same-store sales falling 2%. U.S. store traffic also declined, continuing a trend from the prior quarter.
CEO Calvin McDonald acknowledged the softness, stating that American consumers are “being very intentional” about their purchases amid broader economic uncertainty. After a pandemic-era boom in activewear, demand has cooled. Rival brands like Alo Yoga and Vuori are gaining traction with trendier, often more affordable offerings.
Lululemon’s guidance reflected the turmoil. The company lowered its full-year earnings forecast to a range of $14.58–$14.78 per share, down from $14.95–$15.15. That puts even the high end of guidance below analysts' average estimate. The second-quarter forecast also came in light, with projected earnings of $2.85–$2.90 per share, compared to a Wall Street target of $3.29.
Strategic Shifts Aim to Regain Momentum
To combat rising costs, Lululemon is planning modest price increases on a select portion of its product line. These strategic hikes, along with improved sourcing efficiencies, are expected to help offset the estimated 110 basis point hit to gross margins this year from higher tariffs, particularly on goods imported from China, Vietnam, and Cambodia.
At the same time, the company is revamping its product lineup to address stagnation in its women’s category. Early reception to new offerings like the Daydrift trouser and Align No Line items has been encouraging, signaling some traction in its “product newness” strategy. Lululemon has also restructured its merchandising teams to speed up innovation cycles.
Internationally, China remains a central pillar of Lululemon’s expansion plans. While growth slowed to 7% on a constant dollar basis—down from 27% the previous quarter—leadership remains committed to making China its second-largest market by 2026.
Still, Wall Street remains cautious. At least a dozen brokerages cut their price targets following the results, with JPMorgan trimming its target from $389 to $303. Jefferies analyst Randal Konik reiterated an Underperform rating, citing rising competition and declining U.S. sales.
Conclusion
While Lululemon continues to post solid top-line growth and margins, concerns over profit erosion and a cooling U.S. market have dimmed investor enthusiasm. Strategic pricing, product refreshes, and international expansion may buoy long-term performance, but near-term headwinds—from tariffs to cautious consumer behavior—pose real challenges. For now, Lululemon’s once high-flying stock faces a recalibration.
While Lululemon continues to post solid top-line growth and margins, concerns over profit erosion and a cooling U.S. market have dimmed investor enthusiasm. Strategic pricing, product refreshes, and international expansion may buoy long-term performance, but near-term headwinds—from tariffs to cautious consumer behavior—pose real challenges. For now, Lululemon’s once high-flying stock faces a recalibration.
Considering a $1,000 investment in these companies?
Our team at Stock Investor carefully curated a list of top stocks with the potential for significant returns, suitable for beginners and seasoned investors alike who are eager to learn a trade and unearth the best stocks to buy. Though not featured in this article, these selected stocks could be game-changers in the future.For those seeking dynamic trading experiences, consider joining our Swing Trade Alerts, Option Income Alert, or our Trading Room. Take advantage of our special offer today, starting at just $1 in the first month.
Unlock the secrets of Smart Money
Explore how billionaires and institutions are influencing the market. Follow their every move with DarkOption Flow and stay updated on essential market insights. Begin your journey to informed investing today!
Education
And if you're a fan of Invest opedia, you'll appreciate what we offer at SharperTrades even more. Explore our comprehensive option trading course and technical trading course, where you can learn trading, analyze stocks, delve into chart patterns for stocks, and gain invaluable insights for making the best company investments.
Unlock Your Stock Market Edge with SharperTrades. Dive into powerful trading tools, learn a trade, and receive expert guidance. Stay up-to-date with regular market updates. Learn trading, basics of investing, and how to pick the best stocks to buy. Whether you're a beginner or seasoned investor and trader, we've got you covered. Get started for free, today!
Comments
Post a Comment