Lululemon reports weak guidance as proxy battle, tariffs weigh on bottom line

<p>Lululemon offered a weak 2026 outlook on Tuesday as tariffs, higher expenses and a dramatic proxy battle with its founder weigh on its bottom line.</p>
<p>The athleisure company's guidance for both the current quarter and the fiscal year came in lower than expected on the top and bottom lines.</p>
<p>Lululemon is expecting first quarter sales to be between $2.40 billion and $2.43 billion, weaker than estimates of $2.47 billion, according to LSEG. It anticipates earnings per share will range between $1.63 and $1.68, also weaker than estimates of $2.07.</p>
<p>For the full year, Lululemon is expecting sales to be between $11.35 billion and $11.50 billion, below expectations of $11.52 billion. Earnings guidance of $12.10 to $12.30 per share was also far weaker than estimates of $12.58.</p>
<p>"The work is really underway in terms of our action plan, and we're really focused on the importance of course correcting on a number of fronts," interim co-CEO Meghan Frank told CNBC in an interview. "We've got a new creative director, his first line is hitting in Q1, we are seeing some green shoots, I would say, from the product in Q1 so we're excited about some of the momentum we have on that line item. We have had some great response from some of our recent product activations, and then we're also reducing our speed to market."</p>
<p>During Lululemon's holiday quarter, the company beat estimates on both the top and bottom lines, though Wall Street had lowered its expectations for the period in recent months.</p>
<p>Here's how the Vancouver-based retailer performed during its fiscal fourth quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:</p>
<ul>
<li>Earnings per share: $5.01 vs. $4.78 expected</li>
<li>Revenue: $3.64 billion vs. $3.58 billion expected</li>
</ul>
<p>The company's net income for the three-month period that ended Feb. 1 was $586.9 million, or $5.01 per share, compared with $748.4 million, or $6.14 per share, a year earlier.</p>
<p>Sales rose slightly to $3.64 billion, up about 1% from $3.61 billion a year earlier.</p>
<p>Lululemon raised its fiscal fourth-quarter guidance during the ICR conference in Orlando earlier this year, so all eyes were on the company's 2026 guidance following more than a year of underperformance.</p>
<p>The retailer, always considered a premium brand that rarely offered promotions, had been leaning on discounts to drive sales and move inventory. The company is now working to pull back that strategy this year, Frank said. Lululemon expects the move will weigh on sales in the near term, but it will bring the company back to a full-price business over time, she said.</p>
<p>Meanwhile, it's seeing a number of pressures on its bottom line. Higher tariffs and the <a href="https://www.cnbc.com/2025/08/29/retail-impact-de-minimis-exemption-ends-globally.html">end of the de minimis</a> exemption continue to be a major cost for the company.</p>
<p>This year, Lululemon expects tariffs to cost the company $380 million, up from $275 million last year, on a gross basis. Once mitigation efforts are taken into account, the net impact is expected to be $220 million in 2026, up from $213 million in 2025.</p>
<p>Lululemon has been negotiating with suppliers and taking other actions to reduce its exposure to tariffs, but it isn't increasing prices to offset the added costs, especially as it looked to promotions to drive sales in recent months. The brand was already priced toward the high end of the market prior to President Donald Trump's tariff hikes last year, leaving it with fewer tools in its arsenal to offset the duties, especially as it faces <a href="https://www.cnbc.com/2024/12/19/how-vuori-is-taking-on-lululemon.html">intense competition</a> and a slowdown in the athleisure market. </p>
<p>Last year, the company raised prices on a select number of items. Shoppers are still responding favorably so far, but there are no plans to build on those increases for now, said Frank.</p>
<p>Beyond tariffs, the company is also seeing higher expenses from marketing, labor, incentives and costs related to its proxy contest with founder Chip Wilson. Wilson, Lululemon's largest independent shareholder, has been pressuring the company to make changes to its board of directors and has criticized it for losing sight of its creative vision.</p>
<p>"As lululemon reports its fourth quarter and full year 2025 results, shareholders will be critically evaluating the Company's claims of success or improvement," Wilson said in a statement on Tuesday. "The core issue at lululemon is one the Company has struggled with for years: there is a disconnect between the Company's creative engine and the Board's understanding for how brand power and product excellence fuel cultural strength, margin durability and long-term shareholder value."</p>
<p>Lululemon declined to comment.</p>
<p>While parts of Lululemon's business are still growing, it has primarily seen that expansion in China and in other international regions, which make up a fraction of overall revenue. Same-store sales in its largest region, the Americas, haven't grown in around two years, and Lululemon is expecting another year of declines in 2026.</p>
<p>The company said it expects sales in the Americas to decline between 1% and 3% in 2026.</p>
<p>Meanwhile, sales in China are expected to grow around 20%, and the rest of the world by a mid-teens percentage.</p>