lululemon athletica inc. (LULU) Q1 2026: Revenue Growth Amidst Declining Profitability — Disappointing Quarter for Shareholders

In the first quarter of fiscal 2026, lululemon athletica inc. (NASDAQ:LULU) reported a revenue increase of 4% to $2.5 billion compared to $2.37 billion in the same quarter last year. However, this growth was overshadowed by significant declines in profitability metrics, leading to a disappointing quarter for shareholders.

Key Financial Metrics:

• Revenue: Increased by $100.9 million or +4% YoY to $2.5 billion.
• Comparable Sales: Increased by 1%, but decreased by 2% on a constant dollar basis.
• Gross Profit: Decreased by $44.3 million or -3% YoY to $1.3 billion, with a gross margin decline of 410 basis points to 54.2%.
• Income from Operations: Decreased by $161.7 million or -37% YoY to $276.9 million, with an operating margin decrease of 730 basis points to 11.2%.
• Diluted EPS: Reported at $1.69, down from $2.60 in Q1 2025, a decline of $0.91 or -35%.
• Share Repurchases: The company repurchased 2.2 million shares for a total cost of $358.3 million.

Analyst Opinion

This quarter presents a mixed bag for lululemon shareholders. While revenue growth is a positive sign, the substantial declines in gross profit, operating income, and earnings per share indicate underlying challenges that the company is facing. The decrease in profitability metrics, particularly the 37% drop in income from operations and the 35% decline in diluted EPS, raises concerns about the company's ability to maintain its growth trajectory amidst increasing competition and market pressures.

The management's commentary suggests that while there are positive signals, such as improvements in full-price sales and growth in international markets (22% increase in international net revenue), the overall performance in North America was disappointing, with a 3% decline in net revenue and a 5% drop in comparable sales. This indicates that the company is struggling to capture consumer demand in its primary market.

Dividend and Guidance Changes

Lululemon did not announce any changes to its dividend policy during this quarter. However, the company has adjusted its guidance for the upcoming quarters:

• Q2 2026 Revenue Guidance: Expected to be in the range of $2.450 billion to $2.475 billion, representing a decline of 3% to 2%.
• Q2 2026 EPS Guidance: Expected to be in the range of $1.76 to $1.81.
• Full Year 2026 Revenue Guidance: Now expected to be in the range of $11.000 billion to $11.150 billion, representing a decline of 1% to 0%.
• Full Year 2026 EPS Guidance: Expected to be in the range of $10.95 to $11.15.

Forward Catalysts

Investors should closely monitor lululemon's performance in the upcoming quarters, particularly how the company navigates the challenges in North America and capitalizes on its international growth. The effectiveness of the management's strategies to reposition the brand and strengthen its product offerings will be critical. Additionally, any updates on share repurchases or potential tariff refunds could also impact investor sentiment moving forward.

In conclusion, while lululemon's revenue growth is a positive indicator, the significant declines in profitability metrics and the cautious outlook for the remainder of the year suggest that shareholders may need to brace for continued volatility as the company works to regain its footing in a competitive market.

Note: The following tables are expressed in thousands.

First Quarter	2026	2025
Net revenue	$2,471,603	$2,370,660
Costs of goods sold	1,132,785	987,534
Gross profit	1,338,818	1,383,126
As a percentage of net revenue	54.2%	58.3%
Selling, general and administrative expenses	1,059,988	942,871
As a percentage of net revenue	42.9%	39.8%
Amortization of intangible assets	1,884	1,630
Income from operations	276,946	438,625
As a percentage of net revenue	11.2%	18.5%
Other income (expense), net	9,131	11,786
Income before income tax expense	286,077	450,411
Income tax expense	91,029	135,839
Net income	$195,048	$314,572
Basic earnings per share	$1.69	$2.61
Diluted earnings per share	$1.69	$2.60
Basic weighted-average shares outstanding	115,414	120,632
Diluted weighted-average shares outstanding	115,482	120,843

May 3,	February 1,	May 4,
ASSETS
Current assets
Cash and cash equivalents	$1,514,729	$1,807,202	$1,325,272
Inventories	1,687,088	1,700,753	1,652,091
Prepaid and receivable income taxes	422,167	352,469	230,280
Other current assets	370,591	402,277	374,874
Total current assets	3,994,575	4,262,701	3,582,517
Property and equipment, net	2,045,719	2,033,720	1,846,609
Right-of-use lease assets	1,948,704	1,630,181	1,549,401
Goodwill and intangible assets, net	189,357	191,194	178,001
Deferred income taxes and other non-current assets	353,086	338,947	274,015
Total assets	$8,531,441	$8,456,743	$7,430,543
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$294,323	$331,421	$303,975
Accrued liabilities and other	586,317	662,982	506,996
Accrued compensation and related expenses	172,395	187,887	144,222
Current lease liabilities	357,204	298,724	281,837
Current income taxes payable	50,130	43,948	31,276
Unredeemed gift card liability	296,361	316,632	271,076
Other current liabilities	37,586	45,954	33,003
Total current liabilities	1,794,316	1,887,548	1,572,385
Non-current lease liabilities	1,778,804	1,499,717	1,424,945
Deferred income tax liability	75,251	52,278	98,189
Other non-current liabilities	57,469	55,360	45,454
Stockholders' equity	4,825,601	4,961,840	4,289,570
Total liabilities and stockholders' equity	$8,531,441	$8,456,743	$7,430,543

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