Lululemon Issues Weak Forecast Amidst Proxy Battle and Tariff Challenges

• Tariff costs are expected to rise to $220 million net impact in 2026 (up from $213 million in 2025), with gross tariff costs reaching $380 million; the company is not raising prices to offset these expenses
• Americas same-store sales have not grown in approximately two years, with the company projecting a 1-3% decline in 2026, while China sales are expected to grow around 20%
• The company is pulling back on discounting strategy to return to full-price business, while also facing higher expenses from marketing, labor, and costs related to the proxy contest with founder Chip Wilson, who holds an 8% stake

Lululemon Weak Forecast Summary

Key Financial Results & Guidance:

Lululemon exceeded Q4 fiscal 2025 expectations with EPS of $5.01 and revenue of $3.64 billion (vs. $3.58 billion expected). Net income reached $586.9 million for the quarter ending Feb. 1, with sales up 1% year-over-year.

However, the company issued disappointing fiscal 2026 guidance:

• Q1 2026: Revenue of $2.40-$2.43 billion (vs. $2.47 billion expected)
• Full year 2026: Revenue of $11.35-$11.50 billion (vs. $11.52 billion expected); EPS of $12.10-$12.30 per share

Major Challenges:

Tariffs: Lululemon faces escalating tariff costs of $380 million gross ($220 million net after mitigation) in 2026, up from $275 million gross ($213 million net) in 2025. The company is not raising prices to offset these costs despite being positioned at the premium end of the market.

Proxy Battle: Founder and largest independent shareholder Chip Wilson is waging a proxy contest, adding significant expenses and management distraction.

Promotional Pressure: The traditionally premium brand has relied heavily on discounts to move inventory, though management plans to reduce this strategy to return to full-price positioning.

Regional Performance:

The Americas (largest region) expects 1-3% sales decline in 2026, marking nearly two years without same-store sales growth. China is projected to grow ~20%, with other international markets up mid-teens percentage.

Market Implications:

Lululemon faces a challenging environment with margin pressure from tariffs, softening athleisure demand, governance uncertainty, and strategic repositioning away from promotions. Near-term sales headwinds expected as the company prioritizes brand positioning over volume.