Key takeaways:
- Operating income fell 37% to $276.9 million in Q1 fiscal 2026, with operating margin dropping 730 basis points year over year to 11.2%.
- Americas comparable sales declined 6% on a constant-dollar basis, prompting a full-year revenue guidance cut to $11.00 billion to $11.15 billion.
- Management pointed to an underperforming yoga campaign, negative commentary in the media and social channels, proxy contest costs as headwinds.
Lululemon Athletica reported first-quarter fiscal 2026 results on Thursday afternoon that illustrated the cost of managing multiple headwinds at once: a product campaign that did not deliver, a months-long public dispute with the company’s founder, elevated tariff exposure, and a leadership structure still in transition ahead of a permanent CEO taking office in September.
Net revenue rose 4% to $2.47 billion for the quarter, though on a constant-dollar basis the increase was 2%. Comparable sales increased 1% in reported terms but fell 2% in constant dollars. The growth was driven almost entirely by international markets.
Americas net revenue decreased 3%, and Americas comparable sales fell 5% in reported terms and 6% on a constant-dollar basis.
Gross profit fell 3% to $1.34 billion and gross margin dropped 410 basis points to 54.2%, down from 58.3% in the year-ago quarter. Income from operations fell 37% to $276.9 million, with operating margin declining 730 basis points to 11.2% from 18.5% a year earlier.
Diluted earnings per share came in at $1.69, compared to $2.60 in the first quarter of 2025.
Product and Campaign Misses
Co-CEO Meghan Frank said the company faced two key factors impacting its trend as Q1 closed and Q2 began: spikes of negative commentary in the media and on social channels regarding the brand, which hurt traffic and overall top-line performance, and product launches that did not generate the anticipated guest response.
The most specific example Frank cited was the Look of Yoga campaign. The campaign featured Away from Body styles across the Align and Groove franchises, which were received well by guests, but the campaign did not produce the expected halo effect on other areas of the assortment, she said. The company had anticipated the campaign would lift sales across broader product categories, and it did not.
Frank also outlined an ongoing challenge with product development speed. She said the mainline product development process had only recently been shortened from 18 to 24 months down to 15 to 16 months, with work still underway to reduce it further to 12 to 14 months.
To increase responsiveness in the interim, the company has expanded what it calls its chase capability, chasing 20% more volume this year relative to last to react more quickly when products show strong guest demand.
The Proxy Fight’s Measurable Cost
Running through the quarter was the drawn-out public dispute between Lululemon and its founder and largest shareholder, Dennis J. “Chip” Wilson, who holds approximately 8.7% of the company’s outstanding stock.
Wilson spent months publicly criticizing the board and current leadership over what he described as failures of succession planning and strategic direction, and in December 2025 he nominated three independent director candidates.
Just days before the earnings call, the two sides reached a settlement: the board agreed to appoint two of Wilson’s nominees, Marc Maurer and Laura Gentile, following the annual shareholder meeting on June 25, and committed to naming an additional director with product and brand expertise by Oct. 1, 2026.
Wilson agreed to standstill, non-disparagement and voting provisions for approximately 18 months.
The proxy contest showed up in the financials. SG&A expenses rose to approximately $1.06 billion, or 42.9% of net revenue, compared to 39.8% of net revenue in the same period last year. Management attributed the 310-basis point increase to expenses reduced in the prior year that were layered back in this year, including store labor hours, incentive compensation, the timing of certain brand activations, and costs related to the proxy contest.
A Leadership Void at the Top
The results landed as Lululemon continues to operate without a permanent CEO. Longtime chief Calvin McDonald stepped down in January 2026, leaving interim Co-CEOs Frank, who serves as CFO, and André Maestrini, the company’s President and Chief Commercial Officer, to run the business while a search played out.
In April, the board announced that Heidi O’Neill, most recently President of Consumer, Product and Brand at Nike, would take the role effective Sept. 8, 2026, at which point Frank and Maestrini will return to their prior positions.
On the earnings call, Frank outlined the company’s priorities: strengthen North America performance and continue to expand internationally.
Tariffs Added External Pressure
Gross margin was hurt by 280 basis points from the negative tariff impact, 33 basis points from a product margin decline, and 140 basis points from fixed cost deleverage, partially offset by 100 basis points in enterprise efficiency gains. The tariff headwind is expected to persist, with management guiding gross margin down approximately 410 basis points in the second quarter.
Lululemon Positives in Q1
Not all of the quarter’s signals pointed downward.
Internationally, Lululemon continued to show strong momentum. China Mainland net revenue increased 30%, or 23% on a constant-dollar basis, while Rest of World net revenue grew 13%, or 9% in constant dollars.
On the product side, several launches drew positive shopper response during the quarter. Frank highlighted updates to key run franchises including Fast and Free, Swiftly and Metal Vent as performing well, and also pointed to Daydrift and Define, where expanded silhouettes and new colors drove strong guest engagement.
Men’s revenue increased 7% and women’s revenue increased 4%. Digital also held up, with digital revenue rising 4% to $1 billion and accounting for 40% of total revenue.
Guidance Cut Across the Board
The combined effect of weaker North American sales, underperforming product launches, elevated SG&A, proxy costs and tariff pressure led Lululemon to revise its outlook downward.
For the full year the company now expects net revenue in the range of $11.00 billion to $11.15 billion, representing flat to down 1%, with diluted EPS in the range of $10.95 to $11.15. The second-quarter outlook was similarly reduced. Q2 net revenue is guided to a range of $2.45 billion to $2.475 billion, representing a decline of 3% to 2%, with diluted EPS expected in the range of $1.76 to $1.81.
Lululemon an Outlier with Broader Retail Industry
Lululemon’s results stood in contrast to the broader retail industry’s performance in the quarter thus far.
According to LSEG’s Retail/Restaurant Index, 175 of 188 companies, or 93% of the index, had reported Q1 2026 EPS results as of June 3, with 74% announcing profits that beat analyst expectations and blended earnings growth for the index running at 26.8%.
By comparison, Lululemon’s 35% year-over-year decline in diluted EPS, from $2.60 to $1.69, placed it outside that trend.
