Lululemon Athletica Inc.'s 2026 Earnings Call Highlights Clash Over Full-Price Sales Timelines and 35% Newness Target

Date of Call: Mar 17, 2026

Financials Results

• Revenue: Q4: $3.6B, up 1% YOY (6% excluding 53rd week in 2024).
• EPS: Q4: $5.01 per diluted share, down 18% YOY from $6.14.
• Gross Margin: Q4: 54.9%, down 550 basis points YOY.
• Operating Margin: Q4: 22.3%, down 660 basis points YOY.

Guidance:

• Full year 2026 revenue expected in range of $11.35B-$11.5B, representing 2%-4% growth.
• North America revenue expected down 1%-3% in 2026, with improvement in full price sales.
• China Mainland revenue expected up approximately 20% in 2026.
• Rest of world revenue expected up in mid-teens in 2026.
• Full year 2026 EPS expected in range of $12.10-$12.30, down from $13.26 in 2025.
• Q1 2026 revenue expected in range of $2.4B-$2.43B, representing 1%-3% growth.
• Q1 2026 EPS expected in range of $1.63-$1.68, down from $2.60 a year ago.
• Full year 2026 gross margin expected to decrease approximately 120 basis points.
• Full year 2026 operating margin expected to decrease approximately 250 basis points.

Business Commentary:

Revenue Performance and Regional Trends:

• Lululemon Athletica reported total net revenue of $3.6 billion for Q4, with a 6% increase excluding the 53rd week in 2024 and a 2% increase in comparable sales.
• North America revenue was flat, with the U.S. down 1% and Canada up 3%. In contrast, China Mainland saw a significant 28% revenue increase, and the rest of the world grew by 12%.
• The regional performance was influenced by strong demand in China and international markets, while North America faced challenges due to higher markdown penetration.

Product Innovation and Full Price Strategy:

• Lululemon introduced new product lines such as Unrestricted Power, ShowZero, and ThermoZen, with a focus on increasing new style penetration to 35% in 2026.
• The company is aiming to return to healthier levels of full price sales in North America after seeing a higher markdown penetration in 2025.
• This strategy is part of an effort to reinforce Lululemon's premium positioning and protect operating margins.

Operational Efficiency and Cost Management:

• SG&A expenses were approximately 32.5% of net revenue, up 100 basis points year-on-year due to foreign exchange, fixed cost deleverage, and ongoing investments in brand awareness.
• Lululemon is targeting meaningful savings by simplifying operations and focusing on scaling effectively, with a particular emphasis on managing tariff impacts and reducing complexity.

International Market Expansion:

• Lululemon's international growth was highlighted by a 28% revenue increase in China Mainland and a 12% increase in the rest of the world.
• The expansion strategy includes leveraging franchise models in new markets like Greece, Austria, and India, and maintaining a strong focus on community engagement and local events.

Inventory Management and Future Outlook:

• Inventory at the end of Q4 increased by 18% in dollars and 6% in units, below the guidance for high single-digit unit growth.
• Lululemon plans to keep inventory units flat to slightly down in 2026 to better react to guest demand and support the return to a healthier full price sales baseline.

Sentiment Analysis:

Overall Tone: Neutral

• Management acknowledges challenges, stating 'we recognize there is more work to be done,' but expresses optimism with 'green shoots' from new products and activations, 'renewed energy and enthusiasm across the business,' and confidence in the action plan to 'realize the full potential of Lululemon.'

Q&A:

• Question from Brooke Roach (Goldman Sachs): When do you think the product assortment will be appropriate to deliver a return to an inflection in North America growth? And how are you thinking about the headwind from the removal of markdowns throughout the year and the introduction of that new full price selling product throughout the year?
  Response: Expect full price sales to inflect positively in Q2 and flip positive in second half of 2026; markdowns to improve modestly, with penetration up only 60 bps for full year 2026.

• Question from Lorraine Hutchinson (Bank of America): As you work to inflect the North America sales trajectory to positive, are you doing any reassessing of your marketing, either dollars spent or types of marketing outreach to try to really bring in a new customer and reignite your existing?
  Response: Focusing on engaging guests with more product-focused campaigns utilizing brand ambassadors and influencers, and activating through events like the BNP Paribas Open and Studio Yet.

• Question from Adrienne Yee (Barclays): On the 35% newness, can you talk about kind of whether that is obviously styles which you mentioned or color choice and SKUs, and what products are you sunsetting to make room for the newness?... How much of the CapEx is AI tech driven, like the tech stack to support AI? And how do you plan to use that, incorporate that into the business?
  Response: 35% newness refers to never-before-seen products, not just color waves; sunsetting some SKUs as part of assortment edits. AI investments are focused on guest-facing tools, enhancing go-to-market calendar, and supporting speed to market.

• Question from Laurent (Exane BNP Paribas): For the audience, the North American full price realization, can you maybe just unpack that a little bit better in terms of, like, I think you mentioned 1-2 is better than 4-2, but in terms of percentages, where is it now versus couple of years ago, and where do you want that to go back for 2026?
  Response: Full price penetration was pressured in 2025 with markdowns up 130 bps in Q4; expect meaningful improvement in Q1 2026, turning flat in Q2, then positive in second half of 2026.

• Question from Matthew Boss (J.P. Morgan): Could you maybe speak to the bridge from 4% underlying revenue growth in the fourth quarter to the 1%-3% in the first quarter and 2%-4% for the year?
  Response: The sequential decline is due to the ramp of full price sales improving from a low in Q4, with markdown pressure easing through the year.

• Question from Paul Lejuez (Citi Research): I’m curious if we should read that as you guys being happy with full price selling in the rest of the world and China. Maybe to talk about how those regions fare from a full price penetration perspective to the Americas.
  Response: Full price selling remains healthy internationally; the action plan benefits all regions, with a focus on product creation, activation, and premium positioning.

• Question from Michael Binetti (Evercore): Could you speak a little bit to the Canada slower sales outlook in first quarter? Is that something you’re seeing today... Also, could you just give us an update on... what you’re seeing there and some of the early progress or opportunities to shorten the lead times?
  Response: Canada's sensitivity to markdowns is driving a more pronounced impact; go-to-market timeline target is 12-14 months, leveraging automation and AI to improve speed.

• Question from Dana Telsey (Telsey Advisory Group): As you think about the performance apparel market and just the activewear market, did you grow share this quarter? Did it stay the same?... With the early positive results to the new assortments coming in, is it bottoms, is it tops?
  Response: Maintained total apparel market share, lost less than a point in activewear; newness performing well across tops and bottoms, with strong response to innovations like Unrestricted Power and ThermoZen.

• Question from Ike Boruchov (Wells Fargo): Can you just comment on the inventory ending in four Q? How comfortable are you with that?... What’s your expectation for inventory as you move into two Q and then kinda the rest of the year?
  Response: Comfortable with Q4 inventory level and composition; units expected flat to slightly down through 2026 to support full price inflection.

Contradiction Point 1

Timeline for Benefits from New Product Assortment

Inconsistent timeline for when new product assortment will drive meaningful sales benefits.

Brooke Roach (Goldman Sachs) - Brooke Roach (Goldman Sachs)

2026Q4: A meaningful inflection in full-price sales occurred in Q1 2026 compared to Q4 2025. - [Meghan Frank](CMO)

When will the product assortment drive a growth inflection point in North America? - Matthew Boss (JPMorgan)

20251212-2026 Q3: Benefits from the new product assortment and its activation will begin to be seen in Q1 2026. - [Meghan Frank](CMO)

Contradiction Point 2

Outlook and Management of Full-Price Selling/Markdowns

Contradiction on the expected timing and drivers for a return to healthier full-price selling.

Brooke Roach (Goldman Sachs) - Brooke Roach (Goldman Sachs)

2026Q4: Full-price sales penetration... is expected to see a modest improvement in 2026, primarily in the second half. - [Meghan Frank](CMO)

When do you expect the product assortment to drive an inflection point in North America growth, and how are you addressing the impact of removing markdowns throughout the year? - Janine Stichter (BTIG)

20251212-2026 Q3: The plan is to manage inventory units below sales plans to mitigate markdown exposure, starting in Q1. - [Meghan Frank](CMO)

Contradiction Point 3

Marketing Spend Strategy and Allocation

Contradiction on marketing spend increase versus maintaining current levels.

Laurent (Exane BNP Paribas) - Laurent (Exane BNP Paribas)

2026Q4: Marketing spend as a percentage of sales is expected to be relatively flat for 2026. - [Meghan Frank](CFO) & [André Maestrini](CEO)

What portion of the 2026 square footage growth is already committed, and how should marketing spend be allocated? - Jay Sole (UBS)

2025Q2: No plans to increase marketing spend beyond the current 5% of revenue. - [Calvin McDonald](CEO)

Contradiction Point 4

Full-Price Selling Trajectory and Markdown Pressure

Contradiction on the timeline for easing markdown pressure and improving full-price sales.

Brooke Roach (Goldman Sachs) - Brooke Roach (Goldman Sachs)

2026Q4: A meaningful inflection in full-price sales occurred in Q1 2026... Markdown penetration... is expected to see a modest improvement in 2026, primarily in the second half. - [Meghan Frank](CFO)

"When do you expect the product assortment to drive North America growth inflection, and how are you addressing headwinds from markdown removal and full-price product introduction?" - Regarding tariffs, what have you seen so far with price increases, and does the recent tariff hike change your pricing strategy for next year?

2025Q2: Modest price increases... are being implemented, as previously discussed. These actions are in the process of rolling out... and the company is pleased with their initial reception. Pricing will remain a lever considered through the second half of 2025 and into 2026. - [Meghan Frank](CFO)

Contradiction Point 5

Product Assortment Focus and Newness Targets

Contradiction on the target for newness within the product assortment.

Adrienne Yee (Barclays) - Adrienne Yee (Barclays)

2026Q4: The 35% newness target for 2026 refers to *new products never seen by guests*, not just new colors on existing items. - [Meghan Frank](CFO)

1) On the 35% newness, what products are you sunsetting to make room for the newness? 2) How does the reporting structure work for merchandising decisions? 3) How much of the CapEx is AI tech-driven, and how will it be used? - Brooke Roach (Goldman Sachs)

2025Q2: The new spring 2026 assortment shifts the newness penetration from 23% to 35%, with a focus on social and lounge categories. - [Calvin McDonald](CEO)