lululemon athletica inc. (LULU) Q4 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals several negative indicators: declining gross margins, reduced EPS, and increased inventory levels. Despite optimistic guidance and new product innovations, the market may react negatively due to the weak financial results and margin contraction. The Q&A section highlighted concerns about North American sales and markdown pressures. The company's strategic plans, including marketing and product launches, may not offset these negatives in the short term. Without a clear market cap, assuming a moderate reaction, the stock price is likely to experience a negative movement in the range of -2% to -8%.
Key Financial Performance
Total net revenue $3.6 billion, increased by 1% year-over-year. Excluding the 53rd week in Q4 of 2024, net revenue rose 6% or 4% on a constant currency basis. Reasons for change include strong international performance, particularly in China Mainland, and product assortment strength.
North America revenue Flat year-over-year, with comparable sales down 2%. Revenue increased 3% in Canada and decreased 1% in the U.S. Reasons for change include higher markdown penetration and efforts to return to full-price sales growth.
China Mainland revenue Increased 28% year-over-year, with comparable sales increasing 26%. Reasons for change include strong guest response to product assortment, particularly in outerwear and lounge categories, and localized brand campaigns.
Rest of World revenue Increased 12% year-over-year, with comparable sales increasing 5%. Reasons for change include strong performance in South Korea and localized guest engagement strategies.
Store channel sales Decreased 1% year-over-year. Reasons for change include higher markdown penetration and efforts to improve full-price sales.
Digital channel revenue Increased 9% year-over-year, contributing $1.9 billion to the top line. Reasons for change include increased online engagement and product-focused campaigns.
Men's revenue Increased 3% year-over-year. Reasons for change include new product launches and innovations.
Women's revenue Increased 7% year-over-year. Reasons for change include strong guest response to new styles and product innovations.
Accessories and others revenue Increased 4% year-over-year. Reasons for change include expanded product offerings and guest engagement.
Gross profit $2 billion, or 54.9% of net revenue, decreased from 60.4% in Q4 2024. Reasons for change include a 560-basis point decline in product margin due to tariff impacts and higher markdowns, partially offset by enterprise efficiency initiatives.
SG&A expenses $1.2 billion, or 32.5% of net revenue, increased from 31.5% in Q4 2024. Reasons for change include foreign exchange impacts, fixed cost deleverage, and investments in brand awareness.
Operating income $812 million, or 22.3% of net revenue, decreased from 28.9% in Q4 2024. Reasons for change include lower gross margin and higher SG&A expenses.
Net income $587 million, or $5.01 per diluted share, decreased from $6.14 per diluted share in Q4 2024. Reasons for change include lower operating income and higher tariff impacts.
Capital expenditures $183 million, decreased from $235 million in Q4 2024. Reasons for change include reduced investments in distribution centers, store capital, and technology.
Inventory $1.7 billion, increased by 18% year-over-year. Reasons for change include higher tariff rates and foreign exchange impacts, with unit inventory growth of approximately 6%.
You have reached the limit. Sign up to access full content
Get started
Operating Highlights
Unrestricted Power: A new training collection for women and men, constructed from Power Lu fabric, offering a soft feel, stretch, and support. Positive guest response since launch.
ShowZero: Updated no-show-sweat technology for high-sweat activities, developed with tennis player Frances Tiafoe. Conceals sweat while being lightweight and breathable. New products to be introduced later this year.
ThermoZen: A collection of insulated jackets and vests offering warmth, water and wind resistance, and softness. Positive guest response.
China Mainland: Revenue increased 28% in Q4 2025, with strong performance in outerwear and lounge categories. Localized campaigns and Chinese New Year promotions contributed to success.
South Korea: Strong growth driven by localized guest engagement and celebrity endorsements. New store in Gangnam received positive response.
EMEA: 100th store opened in Warsaw, Poland. Plans for new franchise markets in Greece, Austria, Hungary, Romania, and India in 2026.
Full-price sales growth: Focus on returning to full-price sales growth in North America through product newness, reduced markdowns, SKU reduction, and inventory rebalancing.
Enterprise enablement: Efforts to create efficiencies and manage costs, including inventory management, supply chain improvements, and leveraging automation and AI.
Board of Directors: Chip Bergh, former CEO of Levi Strauss, appointed to the Board, bringing retail and brand expertise.
CEO search: Board is conducting a robust search for a new CEO, with updates to be provided in the future.
You have reached the limit. Sign up to access full content
Get started
Risk or Challenges
North America Full-Price Sales: The company is facing challenges in returning to full-price sales growth in North America. Higher markdown penetration in 2025 has impacted the premium positioning of the brand, and efforts to improve full-price sales are ongoing.
Tariff Costs: Tariffs have significantly impacted gross margins, with a gross negative impact of 520 basis points in Q4 2025 and an anticipated gross tariff impact of $380 million in 2026. This continues to pressure profitability.
North America Revenue Decline: Revenue in North America is expected to decline by 1% to 3% in 2026, with the U.S. also tracking in this range. This reflects ongoing challenges in the region.
SG&A Expenses: SG&A expenses are expected to deleverage by 130 basis points in 2026 due to investments in market expansion, omni capabilities, and brand awareness, as well as costs related to proxy contests and incentive compensation.
Inventory Management: The company is working to rebalance inventory levels and reduce SKU complexity, but inventory challenges remain, with dollar growth expected in the mid- to high single-digit range in 2026.
Operating Margin Decline: Operating margins are expected to decrease by approximately 250 basis points in 2026 due to deleverage on fixed costs, investments in new store openings, and distribution network expansions.
Economic and Market Conditions: Economic uncertainties and market conditions in North America are contributing to slower revenue growth and challenges in achieving full-price sales.
International Expansion Risks: While international markets like China and South Korea show strong growth, there are risks associated with entering new franchise markets such as Greece, Austria, Hungary, Romania, and India.
You have reached the limit. Sign up to access full content
Get started
Guidance & Outlook
Revenue Expectations: For fiscal year 2026, revenue is expected to be in the range of $11.35 billion to $11.5 billion, representing growth of 2% to 4% relative to 2025. North America revenue is expected to decline by 1% to 3%, while China Mainland revenue is projected to grow approximately 20%, and Rest of World revenue is expected to increase in the mid-teens.
Gross Margin Projections: Gross margin for 2026 is expected to decrease by approximately 120 basis points relative to last year, driven by deleverage on fixed costs and ongoing investments in new store openings, optimizations, and distribution center network.
Capital Expenditures: Capital expenditures for 2026 are expected to be approximately $725 million to $745 million, reflecting investments in new locations, relocations, renovations, distribution centers, and technology.
Store Expansion: The company plans to open approximately 40 to 45 net new company-operated stores in 2026, with 15 stores in North America (including 8 in Mexico) and 25 to 30 in international markets, primarily in China.
Inventory Management: Inventory dollar growth is expected to be in the mid- to high single-digit range through 2026, with units flat to down slightly. The company aims to maintain leaner inventories and improve chase capabilities.
Earnings Per Share (EPS): Diluted earnings per share for 2026 are expected to be in the range of $12.10 to $12.30, compared to $13.26 in 2025.
Tariff Impact: Gross tariff impact for 2026 is anticipated to be approximately $380 million, with offsets from enterprise efficiency initiatives of approximately $160 million within gross margin.
Q1 2026 Revenue: Revenue for Q1 2026 is expected to be in the range of $2.4 billion to $2.43 billion, representing growth of 1% to 3%. North America revenue is expected to decline in the mid-single digits, while China Mainland revenue is projected to increase by 25% to 30%, and Rest of World revenue is expected to grow in the mid-teens.
Q1 2026 Gross Margin: Gross margin for Q1 2026 is expected to decrease by approximately 380 basis points relative to Q1 2025, driven by higher tariff costs, investments in store openings, optimizations, and distribution network.
Q1 2026 Earnings Per Share (EPS): Earnings per share for Q1 2026 are expected to be in the range of $1.63 to $1.68, compared to $2.60 in Q1 2025.
You have reached the limit. Sign up to access full content
Get started
Shareholder Return Plan
Dividend Program: No mention of a dividend program was made in the transcript.
Share Repurchase Program: During the quarter, lululemon repurchased approximately 1.4 million shares at an average price of $188. For the full year, the company repurchased $1.2 billion of stock. The company has $1.2 billion remaining on its share repurchase program and plans to continue utilizing it. Share repurchases remain the preferred method of returning cash to shareholders, with repurchase levels in 2026 expected to be similar to those in 2025.
You have reached the limit. Sign up to access full content
Get started
Key Q&A
Q: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?
A:Management expects a meaningful inflection in Q1 relative to Q4, with full-price trends in North America approximately flat in Q2 and flipping positive in the second half of the year. They are lowering markdown penetration, with modest improvement expected in 2026, predominantly in the second half.
Q:Are you seeing any improvement in your base business as you've put these new products into the assortment 1Q to date? Or is the improvement largely driven by the new product launches?
A:Management is seeing improvement to date, with a meaningful inflection in full price from Q4 to Q1. They highlighted new innovations like Unrestricted Power, ThermoZen, and ShowZero, as well as a run capsule, as positive indicators. Employee sales have also picked up with the introduction of new products.
Q:Are you reassessing your marketing strategy to inflect the North America sales trajectory to positive?
A:Management is focusing on engaging guests and ensuring newness is visible. They are shifting towards utilizing brand-appropriate influencers and ambassadors and highlighted activations like the BNP Paribas Open, Milan Olympics, and Chinese New Year as part of their strategy.
Q:Can you elaborate on the 35% newness target and the products being sunsetted to make room for newness? Also, how does the reporting structure work for merchandising decisions?
A:The 35% newness target for 2026 includes truly new products, not just new colorways. Some SKUs are being reduced to make newness more visible. Jonathan Cheung (Creative Director) and Liz Binder (Chief Merchant) report to the CFO, and they are collaborating on these shifts.
Q:How much of the CapEx is AI tech-driven, and how will it be incorporated into the business?
A:Some CapEx investments are focused on AI, particularly in shoring up data and enhancing the go-to-market calendar. AI initiatives are aimed at guest-facing improvements and supporting enterprise enablement strategies.
Q:Can you unpack the North American full-price realization and its trajectory for 2026?
A:Management noted higher markdown penetration in 2025, with 130 basis points in Q4 and 60 basis points for the year. They expect meaningful improvement in Q1, flat trends in Q2, and positive trends in the second half of 2026, supported by newness curation, SKU reduction, and inventory positioning.
Q:What is the square footage growth plan for 2026, and how committed are you to it?
A:The plan includes 40-45 net new openings, with low double-digit square footage growth. North America will see approximately 15 openings, mostly in Mexico, and international markets will have 25-30 openings, primarily in Mainland China. The team is confident in these plans.
Q:What is the marketing spend outlook for 2026?
A:Marketing spend is expected to remain relatively flat as a percentage of sales, with a shift towards impactful guest activations and brand-appropriate influencers and ambassadors.
Q:Can you explain the revenue growth trajectory from Q4 to Q1 and for the full year?
A:Q4 revenue grew 6% excluding the 53rd week. Q1 is guided at 1%-3% growth, and the full year at 2%-4%. The ramp in full-price selling is a key driver, with markdown pressure improving sequentially throughout the year.
Q:What is driving the 250 basis points of operating margin contraction this year, and what is needed for margin expansion?
A:The contraction is mainly due to add-backs of incentive compensation, labor reductions in 2025, and proxy contest expenses. Management sees this as a low point and expects improvement as full-price sales recover.
Q:How does full-price penetration in North America compare to international regions, and what is the level of newness in those regions?
A:International regions have not faced the same full-price headwinds as North America. The steps being taken in product creation and activation are expected to benefit all regions.
Q:What is causing slower sales in Canada in Q1, and what progress is being made in shortening the go-to-market timeline?
A:Canadian consumers are more sensitive to markdowns, leading to slower sales. The go-to-market timeline is being reduced from 18-24 months to 12-14 months, with a focus on tools, processes, and AI-driven automation.
Q:Are you seeing better traction with high-value guests as newness is introduced?
A:It is early in the quarter, but management is seeing positive indicators from new product launches and expects this to extend to high-value guests.
Q:Did you grow share in the performance apparel market this quarter, and what categories are performing well?
A:The company maintained share in the total apparel market but lost less than 1 point in activewear. Tops and bottoms are performing well, with innovations like Unrestricted Power, ThermoZen, and a run capsule driving growth.
Q:How comfortable are you with inventory levels exiting Q4, and what is the inventory outlook for 2026?
A:Management is pleased with Q4 inventory levels, which were up 6% in units. For 2026, inventory units are expected to be flat to slightly down, supporting full-price sales growth.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the high-value guest traction and the exact leverage point for operating margin expansion. They also did not break out full-price penetration percentages for 2026 or provide a fine point on the revenue growth trajectory needed for margin leverage.
You have reached the limit. Sign up to access full content
Get started
Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
BNP Paribas
CEO President
Co CEO
Los Angeles
Paribas Open
Poland
President Chief
ThermoZen
Yo
action plan
campaign
class
collection
count
director
enablement Andre
engagement
enhancement
enterprise enablement
experience store
expertise
focus speed
guest style
iteration ShowZero
potential lululemon
price sale
priority
product activation
product assortment
product creation
product quality
response store
result outlook
search
site guest
step
sweat
world
LULU Transcript
K-Bro Linen Inc. (KBL:CA) Q4 2025 Earnings Call Transcript
Unknown3-20
The earnings call summary presents mixed signals. While revenue growth and store openings are positive, decreased gross margins and EPS, alongside increased costs, are concerning. The Q&A session added clarity on hedging strategies and growth opportunities but highlighted management's reluctance to provide specifics on certain initiatives. The lack of market cap data limits the prediction's accuracy, but overall, the sentiment leans towards neutral due to balanced positive and negative factors.
Lululemon Athletica Inc. (LULU) Q4 2025 Earnings Call Transcript
Unknown3-20
The earnings call summary indicates several concerning factors: declining gross margins, reduced EPS, and negative revenue growth in Q4. Despite some positive regional projections and product launches, the overall financial guidance and market strategy suggest challenges. The Q&A section highlights uncertainties, with management avoiding specifics on guest traction and margin leverage. These negative aspects, along with the absence of a clear market cap, lead to a 'Negative' sentiment prediction for the stock price over the next two weeks.
lululemon athletica inc. (LULU) Q4 2026 Earnings Call Transcript
Unknown3-17
The earnings call reveals several negative indicators: declining gross margins, reduced EPS, and increased inventory levels. Despite optimistic guidance and new product innovations, the market may react negatively due to the weak financial results and margin contraction. The Q&A section highlighted concerns about North American sales and markdown pressures. The company's strategic plans, including marketing and product launches, may not offset these negatives in the short term. Without a clear market cap, assuming a moderate reaction, the stock price is likely to experience a negative movement in the range of -2% to -8%.
lululemon athletica inc. (LULU) Q3 2025 Earnings Call Transcript
Unknown12-11
The earnings call summary presents a mixed outlook: strong growth in China and new product initiatives are positive, but flat revenue in the Americas, increased tariffs, and declining EPS are concerning. The Q&A reveals management's optimism about product innovation and market expansion, but also highlights uncertainties in margin pressures and leadership changes. With no clear guidance improvement and ongoing cost challenges, the overall sentiment remains neutral.
LULU Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
