Lululemon beats Q1 earnings expectations but signals more headwinds to come

A woman walks on a street next to a Lululemon Athletica Inc. shop in Shanghai, China. Photo by Hector RETAMAL/AFP via Getty Images

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Lululemon Athletica Inc.’s first-quarter earnings beat market expectations, but the retailer signalled problems ahead as it cut its full-year outlook.

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On Thursday, the Vancouver-based company reported net revenue increased four per cent year over year to US$2.5 billion for the three months ending May 3, coming in above analysts’ forecasts of US$2.4 billion.

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Net income for the quarter was US$195 million, down from US$314 million a year ago. Diluted earnings per share were US$1.69, down from US$2.60 per share last year and just above analysts’ expectations of US$1.67 per share.

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“Our work to drive improvements in North America resulted in some positive signals in the quarter, including a sequential improvement in full-price sales,” Lululemon interim co-chief executive and chief financial officer Meghan Frank said in a release. “More recently, we have been navigating headwinds that have led us to adjust our outlook for the full year.”

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Lululemon downgraded its guidance for fiscal 2026 and said it now expects net revenue to decline between zero and one per cent to between US$11 billion and $11.15 billion. Previously, the company forecasted full-year net revenue to grow two per cent to four per cent, in the range of US$11.35 billion and US$11.5 billion.

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Net revenue in the Americas declined three per cent in the first quarter to US$1.6 billion. In North America, where Lululemon generates most of its sales, net revenue was down three per cent in Canada and four per cent in the United States.

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Net revenue climbed 30 per cent to US$478 million in mainland China, which accounts for 19 per cent of Lululemon’s sales and is one of the retailer’s most important drivers of growth. Net revenue in the rest of the world was up 13 per cent to US$372 million.

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Comparable sales, a key growth metric that includes net revenue from online sales and established stores that have been open for at least 12 months, increased one per cent.

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Lululemon’s share price has shed around 60 per cent of its value over the last year as the company weathered several headwinds, including U.S. tariffs and the end of the de minimis duty-free shipping loophole; the departure of former CEO Calvin McDonald and slowing sales in North America. Several product missteps and growing competition in the athleisure space added to its struggles.

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For the second quarter, Lululemon expects net revenue to decline three per cent to two per cent to between US$2.45 billion to $2.475 billion.

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Lululemon’s second quarter also marks the end of its proxy fight with founder Chip Wilson, who criticized the brand’s management, strategic direction and lack of product innovation for a decade after leaving the company. He launched a public campaign at the end of December to reshape its board of directors.