Why Is Lululemon (LULU) Down 1.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Lululemon (LULU). Shares have lost about 1.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lululemon due for a breakout? Well, first let's take a quick look at the most recent earnings report in order to get a better handle on the recent catalysts for lululemon athletica inc. before we dive into how investors and analysts have reacted as of late.

lululemon Q4 Earnings & Revenues Beat, Margin Pressures Persist

lululemon reported fourth-quarter fiscal 2025 results, with revenues and earnings per share (EPS) surpassing the Zacks Consensus Estimate. The company delivered year-over-year top-line growth, supported by strength in its international business. However, the bottom line declined from the prior year, reflecting margin pressure from higher markdowns, tariff-related costs and elevated SG&A expenses.

lululemon’s fiscal fourth-quarter EPS of $5.01 declined 18.4% from $6.14 in the prior-year quarter. However, the bottom line surpassed the Zacks Consensus Estimate of $4.77.

The company’s quarterly revenues rose 1% year over year to $3.64 billion and were flat on a constant-dollar basis. Revenues beat the Zacks Consensus Estimate of $3.58 billion. Net revenues declined 4% in the Americas (down 5% on a constant-dollar basis) and increased 17% internationally (up 14% in constant dollars). Excluding the 53rd week of fiscal 2024, net revenues rose 6% year over year and 4% in constant dollars.

Total comparable sales (comps) rose 3% year over year and improved 2% on a constant-dollar basis. Comps in the Americas rose 1% on a reported basis and 2% on a constant-dollar basis. Internationally, comps increased 20% on a reported basis and 16% on a constant-dollar basis.

Within the Americas segment, revenues rose 1% year over year in Canada (down 1% in constant dollars) and declined 6% in the United States, on both reported and constant-dollar basis. In the International segment, revenues rose 24% in Mainland China (up 21% in constant dollars) and 10% in the Rest of the World (up 6% in constant dollars). Comps improved 30% in Mainland China (up 26% in constant dollars) and 9% in the Rest of the World (up 5% in constant dollars) in the fiscal fourth quarter.

In the store channel, the company’s total sales were down 5% year over year, and flat on a constant-dollar basis. Digital revenues improved 5% year over year and were up 9% in constant dollars, contributing $1.9 billion to the total revenues. Excluding the 53rd week of fiscal 2024, sales in the store channel declined 1% and digital revenues rose 8%.

The gross profit declined 8% year over year to $2 billion. The gross margin contracted 550 basis points (bps) to 54.9%, primarily affected by a 560-bps decline in the product margin, led by increased markdowns and tariff impacts. Tariffs had a gross negative impact of 520 bps in the quarter, partially offset by 110 bps from enterprise efficiency initiatives. Notably, markdowns increased 130 bps and fixed-cost deleverage weighed by 30 bps. These headwinds were partly offset by a 40-bps favorable impact from foreign exchange.

However, management noted that the gross margin outperformed its guidance of a 580-bps decline due to lower net tariff impacts and a regional mix.

SG&A expenses of $1.18 billion increased 4% from the year-ago quarter. SG&A expenses, as a percentage of net revenues, of 32.5% rose 100 bps from 31.5% in the prior-year quarter. The increase in SG&A expense rate was primarily due to adverse foreign exchange, fixed-cost deleverage and continued investments in brand building, partly offset by disciplined cost management initiatives across the enterprise.

The operating income declined 22.1% year over year to $812.3 billion in the fiscal fourth quarter. The operating margin of 22.3% contracted 660 bps year over year.

Snapshot of lululemon’s Store Plans

In fourth-quarter fiscal 2025, LULU opened 15 net new stores, including 18 store openings and three closures. The company also completed seven optimizations. As of Feb. 1, 2026, it operated 811 stores.

In the first quarter of fiscal 2026, the company expects to open six net new company-operated stores and complete six store optimizations. For fiscal 2026, lululemon expects to open 40-45 net new company-operated stores and complete 35 optimizations. Store openings in fiscal 2026 are expected to include 15 stores in North America, including about eight locations in Mexico. Additionally, the company expects 25-30 store openings in the international markets in fiscal 2026, with the majority planned for China. LULU expects overall square footage growth in the low-double digits for fiscal 2026. 

LULU’s Other Financial Details

lululemon exited fiscal 2025 with cash and cash equivalents of $1.8 billion, and no debt. The company had $593.6 million of capacity under its committed revolving credit facility and stockholders’ equity of $5 billion. At the end of fiscal 2025, the company’s inventories rose 21% year over year and 18% on a constant-dollar basis to $1.7 billion, with inventory units improving 6%.

The capital expenditure was $183 million in the fiscal fourth quarter. For fiscal 2026, lululemon expects capital expenditure of $725-$745 million, indicating 6% of revenues.

In the fiscal fourth quarter, lululemon repurchased 1.4 million shares for $269.1 million, at an average price of $188. In fiscal 2025, the company repurchased 5 million shares for $1.2 billion. As of Feb. 1, 2026, the company had $1.2 billion remaining under its share repurchase program. LULU expects the repurchase levels in fiscal 2026 to be broadly in line with fiscal 2025.

For fiscal 2026, the company expects dollar inventory to increase in the mid to high-single digits and inventory per unit to be flat to down slightly.

lululemon’s Targets for FY26

The company continues to make steady progress in executing its action plan, with a clear emphasis on improving the sales quality in North America by driving a higher mix of full-price transactions. The company noted that early signs of traction are encouraging, supported by product launches and a series of recent brand activations that are helping to re-energize consumer engagement. However, management remains measured in its outlook, noting that a broader and more sustained improvement in regional performance is likely to develop gradually over the course of the year and extend into fiscal 2027, as the business works toward re-establishing a healthier baseline of full-price selling.

Tariffs continue to represent a meaningful cost headwind. In fiscal 2025, the company incurred gross tariff expenses of $275 million. Through targeted mitigation strategies, including sourcing adjustments and cost efficiencies, the company offset $62 million of this burden, outperforming initial expectations. 

Tariff pressures are expected to intensify, with gross costs projected to reach $380 million in fiscal 2026. To counter this, the company plans to leverage its enterprise-wide efficiency initiatives, which are anticipated to generate $160 million in offsets within the gross margin, helping cushion the overall impact.

Driven by these factors, the company outlined its first-quarter and fiscal 2026 guidance. LULU anticipates net revenues of $11.35-$11.5 billion for fiscal 2026, indicating 2-4% year-over-year growth. On a segmental basis, the company expects Americas revenues to be down 1-3%, reflecting a 1-3% decline in the United States, including an improvement in full-price sales in the region.

The company noted that North America is already witnessing an improvement in full-price selling compared with the fiscal fourth quarter, signaling early progress in its efforts to enhance pricing quality. Driven by this positive momentum, management anticipates a return to year-over-year growth in full-price sales starting in the fiscal second quarter and continuing through the back half of the year. The recovery is likely to be driven by a steady pipeline of product introductions, ongoing innovation and timely updates to core offerings, all of which are designed to strengthen consumer appeal and support a healthier, more sustainable sales mix.

Internationally, management projects Mainland China revenues to increase 20% for fiscal 2026, reflecting its ongoing strength, while revenues for the Rest of the World are expected to increase in the mid-teens. The company notes that trends in Mainland China have been strong in the first quarter of fiscal 2026, driven by a shift of the Chinese New Year into the quarter.

lululemon expects a 120-bps year-over-year decline in gross margin in fiscal 2026. The decline is expected to be led by fixed-cost deleverage and continued investments in store expansion and distribution. Full-year markdowns should improve modestly, while tariffs are projected to have a 90-bps impact, largely offset by mitigation efforts.

The SG&A expense rate is expected to rise 130 bps year over year for fiscal 2026. While the company continues to manage expenses prudently, investments to support business growth are expected to result in higher SG&A expenses. These investments focus on market expansion, enhancing the guest experience through stronger omnichannel capabilities, and building brand awareness.

LULU expects the fiscal 2026 operating margin to contract 250 bps year over year. The company projects an EPS of $12.10-$12.30, suggesting a decline from the $13.26 reported in fiscal 2025. The company anticipates an effective tax rate of 30% for fiscal 2026.

A Peek into LULU’s Q1 Expectations

For the first quarter of fiscal 2026, management anticipates net revenues of $2.4-$2.43 billion, indicating 1-3% year-over-year growth. By region, the company expects North America revenues to decline in the mid-single digits, with the United States remaining in the same range. Revenues in Canada are expected to track slightly slower. Revenues for China Mainland are likely to increase 25-30% and the Rest of World is expected to rise in the mid-teens.

LULU anticipates a 380-bps year-over-year decline in the gross margin due to higher tariff rates, and investments in store openings, optimizations and the distribution network. Increased tariffs are expected to create a gross headwind of 290 bps on the gross margin, with roughly 110 bps of offsets. Markdowns are projected to rise 30 bps year over year. Though full-price selling has improved from fourth-quarter fiscal 2025, the company expects markdowns to decline beginning in the second half.

SG&A, as a percentage of sales, is expected to deleverage 330 bps year over year, driven in part by the timing of brand activations, including the BNP Paribas Open, the Milan Olympics and Studio. With a greater concentration of events planned in the first half of the year, the company expects additional pressure from discrete costs related to the proxy contest, as well as the reintroduction of expenses reduced last year, particularly in store labor hours and incentive compensation. The company also plans to continue investing strategically in growth initiatives and IT infrastructure.

LULU expects the first-quarter fiscal 2026 operating margin to contract 710 bps year over year. EPS for the fiscal first quarter is expected to be $1.63-$1.68, whereas it reported EPS of $2.60 in the prior-year quarter. LULU estimates an effective tax rate of 31.5% for the fiscal first quarter.

How Have Estimates Been Moving Since Then?

Since the earnings release, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -26.29% due to these changes.

VGM Scores

Currently, Lululemon has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for value investors.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lululemon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Lululemon belongs to the Zacks Textile - Apparel industry. Another stock from the same industry, G-III Apparel Group (GIII), has gained 14.1% over the past month. More than a month has passed since the company reported results for the quarter ended January 2026.

G-III Apparel reported revenues of $771.49 million in the last reported quarter, representing a year-over-year change of -8.1%. EPS of $0.30 for the same period compares with $1.27 a year ago.

For the current quarter, G-III Apparel is expected to post a loss of $0.30 per share, indicating a change of -257.9% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

G-III Apparel has a Zacks Rank #5 (Strong Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.

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