Executives at lululemon athletica (NASDAQ:LULU) used the company’s fourth-quarter earnings call to outline an action plan aimed at improving brand health and restoring full-price selling momentum in North America, while continuing to invest behind strong international growth trends. Interim Co-CEO and CFO Meghan Frank and Interim Co-CEO and Chief Commercial Officer André Maestrini said early results in the first quarter show “green shoots” from new product launches and brand activations, though they cautioned that a broader North America revenue inflection is expected to unfold over the course of 2026 and into 2027.
Leadership updates and action plan priorities
Frank opened by highlighting governance and leadership items, including the appointment of former Levi Strauss CEO Chip Bergh to the board of directors. She also said longtime director David Mussafer will not stand for re-election. On the CEO search, Frank said the board is running a “robust” process and meeting with highly qualified candidates, with an update to come later.
- Product creation: raising the bar on design, increasing the “pulse” of innovation, improving speed-to-market, and maintaining product quality.
- Product activation: expanding guest engagement and awareness of new product through activations and marketing.
- Enterprise enablement: simplifying operations and finding efficiencies, including inventory, supply chain, procurement, and automation/AI opportunities.
Frank said a top priority is returning to full-price sales growth in North America by increasing product newness, reducing markdown penetration, reducing SKUs, and rebalancing inventories to reinforce the brand’s premium positioning and protect operating margin.
Product innovation and brand activations
Frank and Maestrini pointed to several new product initiatives, including a new training collection called Unrestricted Power made with a new technical fabric, PowerLu. Frank also described an updated iteration of ShowZero no-show sweat technology, developed in collaboration with tennis ambassador Frances Tiafoe and debuted at the BNP Paribas Open at Indian Wells. In addition, she highlighted ThermoZen, an insulated outerwear collection.
Looking ahead, Frank said the assortment will evolve with updates to lounge and lifestyle franchises, fewer logos, a more focused color palette, and a more edited assortment of smaller accessories. Maestrini added that North America’s “new style penetration” has increased to approximately 35% with spring merchandise, describing the metric as truly new product “never seen by the guests,” rather than new colorways.
On brand activation, Frank described two first-quarter initiatives: “Studio Yet,” a three-week training pop-up in Los Angeles tied to the company’s Yet campaign, and lululemon’s first year sponsoring the BNP Paribas Open tennis tournament. She said the tennis pop-up drew long lines and that about two-thirds of visitors were new to the brand.
Regional performance: North America focus, international momentum
Maestrini said North America remains an area of active change, with the company working to increase newness, enhance the guest experience in stores and online, and improve performance. He said lululemon remains the number one brand for women’s activewear in the U.S., and that new guest acquisition, retention, engagement, and brand relevance metrics remained solid in 2025.
He outlined three North America strategies for 2026: improving full-price sales, enhancing the guest experience with an elevated store “design playbook” and activity-based merchandising, and increasing new style penetration across the assortment. The company cited positive guest response at its Soho store and said it plans to roll out similar updates to additional North America locations in 2026.
Internationally, Maestrini said momentum remains strong. In China Mainland, he cited strong response in outerwear and lounge, including localized campaigns such as a Chinese New Year campaign featuring Yo-Yo Ma. In “rest of world,” he highlighted South Korea as a fast-growing market and discussed a new store in Gangnam. He also noted a milestone of opening the 100th store in EMEA in Warsaw, Poland, and said 2026 plans call for new franchise markets in Greece, Austria, Hungary, Romania, and India.
Fourth-quarter financial results: revenue up, margins pressured by tariffs and markdowns
Frank reported fourth-quarter net revenue rose 1% to $3.6 billion. Excluding the 53rd week in the prior-year quarter, revenue rose 6% (or 4% on a constant currency basis), and comparable sales increased 2% on a constant dollar basis.
On a constant currency basis (excluding the 53rd week), results by region included:
- North America: revenue flat; comparable sales down 2% (Canada revenue up 3%, U.S. down 1%).
- China Mainland: revenue up 28%; comparable sales up 26%.
- Rest of world: revenue up 12%; comparable sales up 5%.
Digital channel revenue increased 9% and contributed $1.9 billion. Store channel sales were down 1%. The company ended the quarter with 811 stores globally, with square footage up 11% year over year, driven by 44 net new stores since the year-ago quarter.
Gross margin fell sharply: gross profit was $2.0 billion, or 54.9% of revenue, versus 60.4% a year ago. Frank said gross margin declined 550 basis points, driven primarily by tariff impacts and higher markdowns. Tariffs had a 520 basis point negative gross margin impact in the quarter, partly offset by 110 basis points related to the enterprise efficiency initiative; markdowns increased by 130 basis points.
Operating income was approximately $812 million (operating margin 22.3%), down from 28.9% in the year-ago quarter. Net income was $587 million, or $5.01 per diluted share, compared with $6.14 a year earlier.
2026 outlook: modest revenue growth, North America decline expected, tariffs remain a headwind
For fiscal 2026, lululemon guided revenue of $11.35 billion to $11.5 billion, representing growth of 2% to 4% versus 2025. By region, the company expects:
- North America: revenue down 1% to 3% (U.S. down 1% to 3%), with improving full-price sales expected to begin showing positive year-over-year growth in Q2 and continue into the second half.
- China Mainland: revenue up approximately 20%.
- Rest of world: revenue up in the mid-teens.
Frank said 2025 gross tariff costs were $275 million, with $62 million offset through mitigation strategies. For 2026, the company anticipates gross tariff impact of approximately $380 million, with about $160 million of offsets from enterprise efficiency initiatives within gross margin.
For 2026, lululemon expects gross margin to decrease about 120 basis points and operating margin to decline about 250 basis points versus 2025. Frank attributed much of the operating margin decline to “add backs” of incentive compensation and labor that were reduced in 2025, plus proxy contest expenses. Diluted EPS is expected to be $12.10 to $12.30, versus $13.26 in 2025, and guidance excludes the impact of future share repurchases.
First-quarter guidance calls for revenue of $2.4 billion to $2.43 billion (up 1% to 3%), with North America down in the mid-single digits and China Mainland up 25% to 30%. First-quarter EPS is expected to be $1.63 to $1.68, compared with $2.60 a year ago, with a gross margin decline of about 380 basis points driven by tariffs and investments.
On capital allocation and store growth, lululemon plans to open about 40 to 45 net new company-operated stores in 2026 and complete about 35 optimizations, driving low double-digit square footage growth. The company ended the quarter with $1.8 billion in cash and cash equivalents and said it repurchased 1.4 million shares in Q4 at an average price of $188, with $1.2 billion remaining on its share repurchase program.
About lululemon athletica (NASDAQ:LULU)
lululemon athletica inc. is a design-focused athletic apparel company known for performance-oriented apparel, footwear and accessories. The company’s product portfolio centers on technical apparel for yoga, running, training and everyday active lifestyle use and includes tops, bottoms, outerwear, underwear, bags and a growing footwear assortment. lululemon emphasizes fabric science and product innovation, marketing garments that blend performance features with lifestyle styling.
Products are developed in-house and produced through a network of third-party manufacturers.
