Lululemon Athletica Q1 2026 Earnings Call Transcript

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Provided by Quartr
June 5, 2025
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Operator

Thank you for standing by. This is the conference operator. Welcome to the Lululemon Athletica Inc. First Quarter twenty twenty five Financial Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded.

Operator

After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Howard Tuban, Vice President, Investor Relations for Lululemon. Please go ahead.

Howard Tubin
Howard Tubin
Vice President of Investor Relations at Lululemon

Thank you, and good afternoon. Welcome to Lululemon's first quarter earnings conference call. Joining me today to talk about our results are Calvin McDonald, CEO and Megan Frank, CFO. Before we get started, I'd like to take this opportunity to remind you that our remarks today will include forward looking statements reflecting management's current forecast of certain aspects of Lululemon's future. These statements are based on current information, which we have assessed, but which by its nature is dynamic and subject to rapid and even abrupt changes.

Howard Tubin
Howard Tubin
Vice President of Investor Relations at Lululemon

Actual results may differ materially from those contained in or implied by these forward looking statements due to risks and uncertainties associated with our business, including those we have disclosed in our most recent filings with the SEC, including our annual report on Form 10 ks and our quarterly reports on Form 10 Q. Any forward looking statements that we make on this call are based on assumptions as of today, and we expressly disclaim any obligation or undertaking to update or revise any of these statements as a result of new information or future events. During this call, we will present both GAAP and non GAAP financial measures. A reconciliation of GAAP to non GAAP measures is included in our quarterly report on Form 10 Q and in today's earnings press release. In addition, the comparable sales metrics given on today's call are on constant dollar basis.

Howard Tubin
Howard Tubin
Vice President of Investor Relations at Lululemon

The press release and accompanying quarterly report on Form 10 Q are available under the Investors section of our website at www.lululemon.com. Before we begin the call, I'd like to remind our investors to visit our Investors site, where you'll find a summary of our key financial and operating statistics for the first quarter as well as our quarterly infographic. Today's call is scheduled for one hour, so please limit yourself to one question at a time to give others the opportunity to have their questions addressed. And now, I would like to turn the call over to Calvin.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

Thank you, Howard. It's good to be here with you today to discuss our first quarter results. As you've seen from our press release, our revenue growth for the quarter came in at the high end of our guidance range. I'm pleased with this performance, which was relatively consistent with quarter four. I'd also note that our revenue in The United States grew 2%, which is an improvement in the trend we've seen over the last several quarters.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

Based on our quarter one revenue performance and what we're seeing thus far in quarter two, we are maintaining our revenue guidance for the full year. As we look ahead, we will continue to leverage our financial strength and our position in the marketplace to play offense, remain agile and successfully manage the environment around us. I'll begin by sharing the details of our quarter one performance, including high level financial metrics and key highlights regarding our regional performance, product innovation and our brand campaigns and activations. Next, I'll provide insights into the planning and strategies we're deploying related to the increase in tariffs. Megan will speak to the specific financial implications and I'll share some insights into the opportunities we have across the business.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

I'll then share my thoughts on quarter two and the remainder of the year, Megan will review our financials and our updated guidance and we will conclude by taking your questions. So let's get started. In quarter one, total revenue increased 7% or 8% on a constant currency basis. Gross margin increased 60 basis points to 58.3% and earnings per share were $2.6 ahead of our expectations. In addition, in quarter one, we continued repurchasing shares and bought back another $430,000,000 of stock.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

Our ongoing repurchases demonstrate the strength of our balance sheet and our continued confidence in the long term prospects for Lululemon. Looking at our regional performance, we continue to see strength across markets driven by our high performance, high style merchandise and the compelling ways we engage with our guests through brand activations and community events. In North America, momentum continued in Canada, where sales grew 9% in constant currency and in The United States, growth improved to 2%. We're making progress on our assortment and we've seen good response to many of our new innovations. But my sense is that in The U.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

S, consumers remain cautious right now and they are being very intentional about their buying decisions. Even with this, we gained market share across both men's and women's in the premium athletic wear market in The United States. In China Mainland, revenue increased 22% in constant currency. As you are aware, Chinese New Year shifted from quarter one of this year to Q4 of last year, while we estimate that this calendar shift had a negative impact of about four percentage points on Q1 revenue growth, we remain pleased with the underlying momentum in this very important growth market. And in the Rest of World, revenue increased 17% in constant currency as we continue to see a strong acceptance of our brand by guests across the APAC and EMEA regions.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

We are executing against our strategy to maximize our existing markets, expand in newer markets, while also seeding others for future growth. I'm excited by the recent store openings in two of our franchise markets, Denmark and Turkey, which are off to a strong start, and we remain on track to enter Italy as a new company operated market and Belgium and The Czech Republic under a franchise model later this year. When looking at the full year, our view on revenue is unchanged and we continue to expect 7% to 8% growth. By region, we continue to anticipate revenue in North America to increase in the low to mid single digit range, China Mainland to grow in the 25% to 30% range and revenue in the Rest of World segment to increase about 20%. Key to our success within all our markets is our product, which offers unique and innovative solves for guests across both athletic and lifestyle product categories.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

Throughout quarter one, guests responded well to the newness we introduced into our assortment. For women, our Defined franchise continues to perform well across our markets globally and we are pleased with the response to our recent launches, including Daydrift, Shake It Out and Be Calm. For men, we're seeing strength in several of our key franchises including Zeroed In, Smooth Spacer and Show Zero. In May, to celebrate the ten year anniversary of our Align franchise, we launched Align No Line, which offers the same fit and feel as the iconic legging but without a front seam. We're pleased with the guest response both online and in the 80 doors where it was offered.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

We plan to build on this momentum for the fall when we roll it to all stores. I'm excited with the innovations we've rolled out this year and will continue to bring to market going forward. We have significant opportunity to expand all five of our key activities, yoga, run, train, golf and tennis and become the top of mind destination for guests who enjoy these activities. Recent examples include our new Fast and Free running short for men. And for women, we launched additional styles which leverage the research and development our teams conducted last year for our further ultra marathon event.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

Switching now to our brand activations. Our teams continue to develop unique and compelling brand campaigns and community events that engage our guests, increase brand awareness and support our product launches. Let me highlight a recent example. To support the launch and to celebrate Align's anniversary, we created our Summer of Align campaign. This fully integrated campaign included traditional and social media, exclusive experiences and events and featured several influencers and ambassadors.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

We hosted events around the world, including our Lululemon roller rink activation at the Bottle Rock Festival in Napa Valley and our largest ever yoga experience in China, attended by 5,000 people in Beijing. This campaign and the other events we activated in quarter one is a great example of how we remain focused on our grassroots approach to guest engagement, while at the same time leveraging traditional media assets and our roster of ambassadors to support product launches and build our brand. In fact, our unaided brand awareness in The United States grew from the mid-30s in quarter four to 40% in quarter one. I would now like to talk for a moment about the current environment related to tariffs. Megan will speak to our assumptions and the implications of potentially higher rates during her guidance discussion, but I first want to spend a few minutes sharing our approach.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

The current tariff paradigm has brought uncertainty into the retail environment as consumers try to assess the impact they will have on daily life. As businesses evaluate these impacts as well, I believe we are better positioned than most to navigate the near term, while also maintaining our focus on investing in our growth potential over the long term. We are operating from a position of strength, our brand remains strong, our guest engagement is high and we offer a compelling value proposition and we are a highly profitable business. Let me share a few details. We have an industry leading operating margin.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

This allows us to continue investing across our strategic roadmap to enable long term growth while managing any increased costs associated with tariffs. Our balance sheet is strong with $1,300,000,000 in cash and no debt, which provides us significant financial flexibility. We are making progress with our newness, have a robust pipeline of innovation and our guests are responding well to many of the new solutions we are bringing into our assortment. And our premium positioning in the performance athletic apparel category yields different elasticity for our products relative to fashion oriented brands. We believe our guests will continue to live an active and healthy lifestyle and turn to us for the technical apparel we are known for.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

Shifting now to how we have been navigating this situation. Over the past few months, our teams have been looking across the enterprise for how we can offset increased tariff rates. Our work streams include prudently managing expenses, identifying efficiencies within our supply chain and evaluating our position in the marketplace related to pricing. During COVID, we developed a strong muscle across our teams to be agile, pull levers across the business within a rapidly changing external environment and simultaneously plan for multiple scenarios. We are applying the same approach now as we maintain a disciplined focus on expenses, look across our supply chain, leverage our dual sourcing capabilities and engage in costing discussions with our vendors and reviewing pricing scenarios to ensure we sit where we want in the market, our pricing appropriately for the innovation in our assortment and maximize any opportunity to gain market share.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

We have always been and will continue to be very intentional with our pricing decisions. These actions will be targeted and will reflect the work we've done on style elasticity. We remain nimble in our approach and feel we are well positioned during this period with many levers to pull. Before handing it over to Megan to discuss our financials, I wanted to share my perspective on quarter two and the remainder of the year. It's been approximately a year since we've made the changes in our product organization and I'm pleased with our evolved structure, the way the teams are working together and the efficiencies we're seeing across our processes.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

We still have work to do to create new products that have the potential to grow into core franchises and further optimize our merchandise mix. However, we are moving in the right direction. And looking at the remainder of 2025, our teams are focused on strengthening our product pipeline and bringing more innovation into our core assortment, while also introducing new styles with the potential to become key franchises and core items in the future, expanding deeper and bringing new technical solves into our five key activities, while further developing our lifestyle assortment, engaging more deeply with our guests through community activations, brand campaigns and leveraging our membership program and expanding our highly productive square footage profile through new store openings and optimizations. As I hand it over to Megan, I want to also say that while we recognize that quarter two has some pressures related to our planned business investments and additional expenses related to tariffs, we feel good about the full year and our ability to maintain our revenue guidance for 2025. There is considerable opportunity ahead for Lululemon and we're intent on successfully navigating the near term while we plan for and invest in the long term. With that, I'll now hand it over to Megan.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Thanks, Calvin. I'm happy we delivered Q1 results that exceeded our expectations. Guests are responding well to our product newness and innovations and as a result, we are maintaining our revenue guidance for the full year. Given the uncertainties in the macro environment, our approach to planning remains balanced on managing the dynamics of the current year, while also maintaining our focus on the long term. We are managing expenses prudently, while also continuing to invest to drive long term growth and set ourselves up for future success.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

This includes new store openings and optimizations, new market entries, growing brand awareness and ensuring we have adequate capacity across our supply chain. I'll share our detailed guidance with you in a moment, but let's first take a look at our Q1 results in detail. For Q1, total net revenue rose 7% or 8% in constant currency to $2,400,000,000 Comparable sales increased 1%. Within our regions, results were as follows: Americas revenue increased 3% or 4% in constant currency with comparable sales down 1% by country, revenue increased 4% or 9% in constant currency in Canada and increased 2% in The U. S.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

China Mainland revenue increased 21% or 22% in constant currency with comparable sales increasing 8% and in the rest of world revenue grew by 16% or 17% in constant currency with comparable sales increasing by 7%. In our store channel, total sales increased 8% and we ended the quarter with seven seventy stores globally. Square footage increased 14% versus last year, driven by the addition of 59 net new Lululemon stores since Q1 twenty twenty four. During the quarter, we opened three net new stores and completed four optimizations. In our digital channel, revenue increased 6% and contributed $961,000,000 of top line or 41% of total revenue.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

And by category, men's revenue increased 8% versus last year, while women's increased 7% and accessories and other grew 8%. Gross profit for the first quarter was $1,400,000,000 or 58.3% of net revenue compared to gross margin of 57.7% in Q1 twenty twenty four. The gross profit rate in Q1 was ahead of our guidance and increased 60 basis points driven primarily by the following. A 130 basis point increase in product margin driven predominantly by lower product costs, improved damages and improved markdowns offset somewhat by higher airfreight 20 basis points negative impact from foreign exchange and 50 basis points of net deleverage on fixed costs. Relative to our guidance, which was for gross margin approximately flat with last year, the upside was driven predominantly by lower product costs, leverage on fixed costs and slightly better markdowns.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Moving to SG and A. Our approach continues to be grounded in prudently managing our expenses while also continuing to strategically invest in our long term growth opportunities. SG and A expenses were $943,000,000 or 39.8% of net revenue compared to 38.1% of net revenue for the same period last year. SG and A was above our guidance of 120 basis points of deleverage due predominantly to the negative impact from an FX revaluation loss. Operating income for the quarter was $439,000,000 or 18.5% of net revenue compared to operating margin of 19.6% in Q1 twenty twenty four.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Tax expense for the quarter was $136,000,000 or 30.2% of pre tax earnings compared to an effective tax rate of 29.5% a year ago. Net income for the quarter was $315,000,000 or $2.6 per diluted share compared to EPS of $2.54 for the first quarter of twenty twenty four. Capital expenditures were $152,000,000 for the quarter compared to $131,000,000 for the first quarter last year. Q1 spend relates primarily to investments that support business growth, including our multi year distribution center project, store capital for new locations, relocations and renovations and technology investments. Turning to our balance sheet highlights.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

We ended the quarter with approximately $1,300,000,000 in cash and cash equivalents. Dollar inventory, which was impacted by higher AUC related to tariffs and foreign exchange increased 23%. When looking at units, inventory increased 16%. We repurchased 1,360,000.00 shares in Q1 at an average price of $316 Share repurchases remain our preferred method to return cash to shareholders and we currently have approximately $1,100,000,000 remaining on our repurchase program. Let me now share our updated guidance outlook for the full year 2025.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

We continue to expect revenue in the range of $11,150,000,000 to $11,300,000,000 This range represents growth of 5% to 7% relative to 2024. Excluding the fifty third week that we had in the fourth quarter of last year, we expect revenue to grow 7% to 8%. We continue to expect 40 to 45 net new company operated stores in 2025 and to complete approximately 40 optimizations. We expect overall square footage growth in the low double digits. Our new store openings in 2025 will include approximately 10 to 15 stores in The Americas, but the rest of our openings planned in our international markets, the majority of which will be in China.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

For the full year, we now expect gross margin to decrease approximately 110 basis points versus 2024. Relative to our prior guidance for a 60 basis point decrease, we expect the additional 50 basis points of deleverage to be driven predominantly by increased tariffs, offset somewhat by our enterprise wide efforts to mitigate these costs and slightly higher markdowns. When looking specifically at tariffs, the assumptions we've made regarding rates include 30% incremental tariffs on China and an incremental 10% on the remaining countries where we source. From a mitigation standpoint, as Calvin said, we've looked across the enterprise and have identified several levers which will help offset much of the impact of these higher rates. Based on our implementation strategies, we expect our mitigation efforts to be most impactful in the second half of the year.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Turning to SG and A for the full year. We expect deleverage of approximately 50 basis points versus twenty twenty four, relatively in line with our prior guidance, driven by FX headwinds and ongoing investments into our Power of three times two roadmap, including investments in marketing and brand building aimed at increasing our awareness and acquiring new guests, investments to support our international growth and market expansion and continued investment in technology. When looking at operating margin for the full year 2025, we now expect a decrease of approximately 160 basis points versus 2024. For the full year 2025, we continue to expect our effective tax rate to be approximately 30%. For the fiscal year 2025, we now expect diluted earnings per share in the range of $14.58 to $14.78 versus EPS of $14.64 in 2024.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Our EPS guidance excludes the impact of any future share repurchases, but does include the impact of our repurchases year to date. We expect capital expenditures to be approximately $740,000,000 to $760,000,000 in 2025. This spend relates to investments to support business growth, including a continuation of our multiyear distribution center project, store capital for new locations, relocations and renovations and technology investments. Shifting now to Q2. We expect revenue in the range of 2,535,000,000.000 to $2,560,000,000 representing growth of seven to 8%.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

We expect to open 14 net new company operated stores in Q2 and complete nine optimizations. We expect gross margin in Q2 to decline approximately 200 basis points relative to Q2 twenty twenty four, driven predominantly by increased occupancy and depreciation, higher tariff rates, modestly higher markdowns in foreign exchange. In Q2, we expect our SG and A rate to deleverage by 170 to 190 basis points relative to Q2 twenty twenty four. This will be driven predominantly by increased foundational investments and related depreciation and strategic investments including those to build brand awareness. In addition, as I mentioned last quarter, we were layering back on certain expenses including store labor hours, which are having a more pronounced impact on Q2 relative to the remainder of the year.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

When looking at operating margin for Q2, we expect a year over year decrease of approximately three eighty basis points. I wanted to add some additional context on our operating margin guidance. In Q2 last year, margin improved by 110 basis points, which was our strongest performance of the year. This year, as I mentioned, we are also being impacted by external factors, namely tariffs, where our mitigation efforts are more pronounced in the back half and foreign exchange. In addition, we are continuing to invest in our strategic roadmap to set ourselves up for ongoing success.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

While these items are having an outsized impact on Q2, when looking at the full year, the decrease in operating margin is significantly less. Turning to EPS, we expect earnings per share in the second quarter to be in the range of $2.85 to $2.9 versus EPS of $3.15 a year ago. We expect our effective tax rate in Q2 to be approximately 30%. When looking at inventory, we expect units to increase in the low double digits in Q2 with dollar inventories up in the low 20s due in large part to the impact of higher tariff rates and foreign exchange. We expect a similar dynamic in inventory growth for the remainder of the year.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

In Q2, the low double digit unit growth reflects our investments in newness and innovation. In addition, we are comping a 6% decline in units in the prior year. We are pleased with both the level and composition of our inventory, which positions us well. And with that, I will turn it back over to Calvin.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

Thank you, Megan. I feel we are well positioned to navigate the current period. We intend to leverage our strong financial position and competitive advantages to play offense, while making deliberate decisions and continuing to invest in our growth opportunities. In closing, I want to thank our talented leaders and teams who make these results possible and demonstrate their agility and passion each day. We'll now take your questions. Operator?

Operator

Thank Our first question is from Dana Tusley with Tusley Group. Please go ahead.

Dana Telsey
CEO and Chief Research Officer at Telsey Advisory Group

Hi, good afternoon everyone. As you think about the guidance for the balance of the year and the pressure on Q2 before you have some mitigation efforts in the back half of the year, can you expand on those mitigation efforts and what you're thinking about, whether it's price increases, diversifying sourcing, how should we think about it? And then when you think about just The U. S. Business, any category strength that you saw with the newness that you offered and any early indications on the no line align, which frankly I've seen good sell throughs? Thank you.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Thanks Dana. I think given the dynamic of the year in terms of Q2 relative to the full year, it's important to anchor in the full year where we guided to a decline of 160 basis points versus our prior guide of 100, which is really related to the net impact of tariffs as well as the slight impact slight increase in markdowns. When we think about, the tariff impact, two mitigation actions I'd highlight. One would be pricing. We are planning to take strategic price increases looking item by item across our assortment as we typically do and it will be price increases on a small portion of our assortment and they will be modest in nature.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

And then on the sourcing side, we are also pursuing some efficiency actions there, some of which will impact the second half of this year. And then we are also focused on that into 2026 as well. And I'll pass it over to Calvin on the product side.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

Yes. Thanks, Dana. In terms of category trends on newness, what's very encouraging is that it's balanced. It's balanced across our activity in lifestyle, new item introductions as well as new and updates to our current. So just walk through a few of these.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

On the lifestyle side of our business, as you've seen and introduced at the beginning of Q1 and sold out pretty much, in all doors, was our Day Drift trouser, which used performance fabrics, with unique, updated style and she responded incredibly well to that. And we will be back in stock fully with some expanded silhouettes for September. So we're very encouraged and believe we have a future core success on our hands. Be Calm, another new core future core introduction that she responded very well to both had great rating reviews. On the activity side of our business, we balance between new as well as updates.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

On the new side, glow up, was well received, good reviews, continues to gain momentum and again introduced with a limited set of colors and we continue to build and expand into that. And again, feel we have a very unique legging, creating a unique sensation and unmet need that for train and seeing good success. And then on updates to our existing core, align, no line is a great example of that. And early results, but very encouraging as you alluded to. And we only had it distributed to 80 doors.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

So again, we are chasing and we'll be in full store distribution by September. You'll see it get stronger and distributed more throughout the quarter. But this is one in which across all of these, and when I referenced the response to newness is encouraging and these being some of the strong hits both from a newness and innovation standpoint, definitely we saw a sellout and are chasing and excited about what that means for the back half. But balanced across activity, lifestyle, new as well as updates. So we know the newness is resonating and working well and the team is busy chasing into these what appear to be future hits for us.

Dana Telsey
CEO and Chief Research Officer at Telsey Advisory Group

Thank you.

Operator

The next question is from Janine Spicer with Jefferies. Please go ahead.

Janine Stichter
Managing Director & Analyst - Consumer Retail & Lifestyle Brands at BTIG

Hi, thanks for taking my question. I was hoping you could dig in a little bit more to the comp drivers, the top line drivers. I think last quarter you had talked about traffic falling off, but seeing some improvements in transaction size and solid performance in conversion. Wondering if you're still seeing the same thing? And then maybe any update on the progression of the quarter, what you saw in April into May? Thank you.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Hi, Janine. So in terms of comp drivers, as we talked about on the last call, we did see a decline in store traffic, particularly in The U. S. As we moved from Q4 into Q1. We did see that moderate somewhat but we did still for the first quarter see a lower traffic trend in stores relative to Q4.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Conversion trends remained relatively consistent, a little bit of a decline year over year. And then also, we did see an uptick in terms of average dollars per transaction in the first quarter. And then in terms of how it's progressing April into May, we don't share specifics on Q2, I would say nothing materially different.

Janine Stichter
Managing Director & Analyst - Consumer Retail & Lifestyle Brands at BTIG

Great. Thanks so much. Thank you.

Operator

The next question is from Brian Nagel with Oppenheimer. Please go ahead.

Brian Nagel
MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.

Hi, good afternoon. So a couple of questions. I'm going to merge them together both tied around kind of tariffs and your strategy for tariffs. I guess the first question, if I'm hearing you correctly, I mean, as you're looking at these tariffs, sounds like you're going to take the biggest hits on margin. So the question I have is, why not at least initially or do more with price?

Brian Nagel
MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.

And then secondly, as we look at the guidance now and sort of say the bigger disconnect between top and bottom line, is that all is that mostly tariffs or I think you did mention some other investment spending in there?

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Thanks, Brian. So in terms of top line versus bottom line, so for the full year we maintained our revenue guide so 11,150,000,000.00 to 11,300,000,000.0 We did lower our op margin for the full year from 100 basis points decline year over year to 160. That's all driven by the net impact of tariffs. So the tariff impact then with some offsets, as I mentioned, in pricing and supply chain. And then a slight increase also in markdowns.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

There are not any meaningful changes in terms of our expense posture. We're maintaining our focus on the long term. And as I mentioned, we do have some mitigation actions on tariffs that will also come into play as we get into '26. In terms of price, know, as Calvin mentioned, we're really looking at this as operating from a position of strength, being strategic in our pricing, looking at our elasticities and where we have opportunity, and we'll continue to take a look at that as the year progresses, but feeling comfortable with our positioning at the state.

Brian Nagel
MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.

Okay, thank you.

Operator

The next question is from Matthew Boss with JPMorgan. Please go ahead.

Matthew Boss
Matthew Boss
Equity Research Analyst at JP Morgan

Great. Thanks. So Calvin, maybe could you elaborate on the progression of comps that you saw over the course of the first quarter? And on the start to the second quarter that you cited, I guess if think about it relative to first quarter performance in The Americas and in China, does the 7% to 8% revenue guidance for the quarter, does that embed a moderation in June and July trends relative to what you've seen in May, given the uncertainty and the dynamic backdrop?

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Hey, Matt. So in terms of how the quarter progressed, no material changes in terms of trend month to month in Q1. As we look to Q2, we don't guide to specifics in Q2, but what I can share is, I would say similar trends in The U. S. Relative to Q1.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

As you know, China was impacted by the timing of Chinese New Year in Q1, which was about a four point delta. So I would say our expectation and current trends would be in line with our annual color we offered on China performance, which should be in the 25% to 30% range.

Matthew Boss
Matthew Boss
Equity Research Analyst at JP Morgan

Great. And then maybe Megan, just a follow-up as it relates to second quarter guidance and the full year. Guess could you elaborate on the slight increase in markdowns now contemplated in the full year outlook and maybe just how you see the progression in the second quarter versus back half?

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Yes. In terms of markdowns, so we did actually see a decline in markdowns in the first quarter. So we haven't seen an uptick in markdowns in our results to date. We were down 10 basis points in Q1. But given consumer confidence and macroeconomic concerns as we move into the second half of the year, we feel it's prudent to tick up our forecast slightly on the markdown line.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

We would be in the range of 10 to 20 basis points above last year, so not meaningfully higher than our last year Water line, which was relatively, I would say, in line with history.

Matthew Boss
Matthew Boss
Equity Research Analyst at JP Morgan

But you're saying first quarter and so far into the second quarter that you haven't seen the need to take the markdowns. It's just an assumption that you've baked in given the backdrop?

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Yes. Would say on our actuals, in Q1, we saw a downward trend, 10 basis points, and our markdown positioning in Q2 would be embedded in our guidance.

Matthew Boss
Matthew Boss
Equity Research Analyst at JP Morgan

Okay. That's great color. Thank you.

Operator

The next question is from Brook Roach with Goldman Sachs. Please go ahead.

Brooke Roach
Brooke Roach
Vice President - Equity Research at Goldman Sachs

Good afternoon and thank you for taking our question. Calvin, given some of the success of some of the new launches that you've seen year to elaborate on your latest thoughts about returning The U. S. Business to sustainable comp growth? And whether or not that differs at all in your Canada versus U.

Brooke Roach
Brooke Roach
Vice President - Equity Research at Goldman Sachs

S. As you contemplate North America reported comps? Thank you.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

Thanks, Brooke. When I look at what we control, in terms of our mix of newness, and how that's performing, especially the new intended core and the way the guest is responding to that, Definitely positive and feel good about those reactions to it. And the team knows and is working on what they can continue to add and innovate to that. When I look at our performance versus the market, our performance, we gained market share in the premium activewear. We had strong performance gains our peers in this segment of the market where we compete.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

And the macro consumer is different. We continue to see a more cautious discerning consumer. We're definitely not happy where the growth is in The U. S. But relative to, the market, and our performance versus others, Pleased that we're putting on share, pleased with the reaction to the newness, and with the mix of newness that's coming, as we continue to get back into stock on the new core that she's reacting to and making those adjustments and the newness that we have planned.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

And I think a bit of the delta between the Canadian and The U. S. Market and the consumer we see is we're not seeing the same discerning consumer in Canada as we are seeing in The U. S. In terms of traffic as well as some other metrics that we monitor.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

So we continue to monitor that, but the newness in both markets are responding very well. And the team is very focused on what the guest is reacting to and bringing that to the consumer and in the market in the back half.

Brooke Roach
Brooke Roach
Vice President - Equity Research at Goldman Sachs

Great. Thanks so much. I'll pass it on.

Operator

The next question is from Ike Boruchow with Wells Fargo. Please go ahead.

Ike Boruchow
Ike Boruchow
Managing Director: Senior Analyst - Retailing, Specialty Softlines and E-commerce at Wells Fargo

Hey, thanks for taking my question. Two questions. I think first for Calvin. So appreciate on the product side, commentary on what's working both in Lifestyle and Performance. But at the end of the day, the comps are up 1%.

Ike Boruchow
Ike Boruchow
Managing Director: Senior Analyst - Retailing, Specialty Softlines and E-commerce at Wells Fargo

So clearly, there's got to be some things that are not working. Could you just maybe help us what exactly are the parts that are lagging that you're hoping to improve? And then Megan, maybe just back to Matt's question. Part of the guidance revision down is markdown, but it sounds like you're saying that you're not seeing any markdown yet, but you're planning it. So I guess maybe I'm just a little confused.

Ike Boruchow
Ike Boruchow
Managing Director: Senior Analyst - Retailing, Specialty Softlines and E-commerce at Wells Fargo

Is it because of the inventory build that you're expecting markdown to accelerate? I guess I'm just confused why you're taking a more cautious approach on that. Like what's the leading indicator that's making you think that if you're not seeing it yet? Thanks.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

Thanks, Ike. In terms of the balance of the mix, I would say the overall traffic numbers are having an impact on the general mix of the assortment in The U. S. From a new guest perspective, we grew our new guests from and I think Megan mentioned this from an AOV, UPT, both positive from a market share across all categories, we saw growth in our premium segment. I think where there continues to be opportunity, is with, our core and seasonal colors.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

We're seeing the guests shift to the truly new styles, as I mentioned, the glow up, the align, no line, the day drift, the be calm, and have opportunities. But overall, it really is the macro discerning consumer that we're seeing through traffic in the store, the behavior, how they're shopping and reacting, I think is definitely showing good indication. And as I alluded to, the growth in market share is indicating we are gaining and winning relative to the marketplace and how the consumer is spending.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

And I would add, Ike, similar on the markdown front. So the traffic trends, I would say, would be the leading indicator on why we've taken that positioning in terms of consumer confidence and macro uncertainty in the second half as well.

Ike Boruchow
Ike Boruchow
Managing Director: Senior Analyst - Retailing, Specialty Softlines and E-commerce at Wells Fargo

Okay. Thank you.

Operator

The next question is from Paul Lejuez with Citi. Please go ahead.

Paul Lejuez
Paul Lejuez
Managing Director at Citi

Hey, thanks guys. Can you maybe give a little bit more detail about inventory by geography? And if there are any specific regions that you're seeing potentially more margin pressure, markdown pressure? Where is that coming from? Is that just The U.

Paul Lejuez
Paul Lejuez
Managing Director at Citi

S? Or is it more global? And is there anything on the competitive landscape front that you see across your different global markets that make you think that things might heat up from a promotional perspective? Thanks.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Thanks, Paul. So in terms of inventory, I'd say again, we haven't seen markdown pressure to date, down 10 basis points year over year in Q1. But when we think about traffic trends and headwinds, they would be predominantly in The U. S. So I'd say that's where I'd probably place a little bit more of the risk as we move into the second half of the year in terms of what we've layered in terms of markdowns.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

And from a competitive perspective, there's nothing we're seeing globally on a price promotional play other than in The U. S. Where I would say we continue to monitor that closely because we do see ongoing promotional activity across the market, across the competitors as we've seen the certain consumer, the more cautious we know that to lever others pull. And we continue to monitor it and quite frankly anticipating a bit of a spike in the back half if the macro headwinds continue. But we are full price business and we'll lead with innovation and our core assortment will continue to play that.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

But we are seeing and do anticipate probably a dynamic competitive market in The U. S.

Paul Lejuez
Paul Lejuez
Managing Director at Citi

Got it. Right. I just follow-up. Have you adjusted purchases at all? Just considering where your inventories are and the tariff situation, maybe taking price up a little bit, have you also taken your purchases purchase assumptions down for the back half?

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

I would say we're always adjusting purchases and reflecting the current environment. We do benefit from about 40% of our purchases in core product. And so that's an area we flex as we move forward. So I would say we always are doing that. We've done that to some degree.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

We'll continue to keep a close eye on inventory levels and sales trends.

Paul Lejuez
Paul Lejuez
Managing Director at Citi

Thank you. Good luck.

Operator

The next question is from Alex Stratton with Morgan Stanley. Please go ahead.

Alex Straton
Alex Straton
Equity Research Managing Director at Morgan Stanley

Great. Thanks so much. Maybe for either of you, where do newness levels stand in total? Like are they back where you want them to be? And then if that's not inflecting Americas comp to positive, are you exploring maybe other potential drivers for what to do to get it there?

Alex Straton
Alex Straton
Equity Research Managing Director at Morgan Stanley

And maybe related for Megan on that one, is a positive comp for Americas possible this year? Or with your view on the macro, is that something that is more kicked out?

Calvin McDonald
Calvin McDonald
CEO at Lululemon

Thanks, Alex. In terms of the composition of our merchandise mix, we are back at our newness percentages historical newness percentages of the sum. I think the way the guest is reacting and responding within that newness, she is reacting very positively to the new core or intended core silhouette styles that she has not seen before alluded to sort of glow up, the align no line, the day drift, be calm to name just a few and there's a number of those. Those as a percentage of our newness mix, we are increasing in the back half so that we're reacting to what the guest is responding to. And as a result, we are shifting some of the seasonal colors, patterns and graphics in the remaining core to maintain that sort of ratio that we're seeing.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

But as I look to the back half, the percentage of newness, remains strong above historical as we lean into a little bit of these areas where the guest has really responded well. And we weren't at full store distribution. We sold out, of many of these styles and silhouettes and have very strong rating reviews on them. So, I'm pleased with the newness mix and the work the team has done. And what we have seen is the consumer respond very well to the completely new styles that she hasn't seen before.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

And that's sort of the mix that you will see us continue to do heading into the back half of this year.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

And Alex, I'd add, we're not guiding specifically to comps for the year, but our view on the full year revenue for The Americas hasn't changed, so low single digit to mid single digit and feel we're well positioned to capitalize if the consumer environment improves as well. So that's what we're offering today.

Alex Straton
Alex Straton
Equity Research Managing Director at Morgan Stanley

Thanks a lot. Good luck.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Thank you.

Operator

The next question is from Jay Sole with UBS. Please go ahead.

Jay Sole
Jay Sole
Managing Director at UBS Group

Great. Thank you so much. My question is about China. Given the comp in China, you've opened a lot of stores. How much more store growth opportunity do you see in China before you start worrying about cannibalizing your existing store base given the level of comp right here?

Jay Sole
Jay Sole
Managing Director at UBS Group

Like can you tell us how many stores you have now? What you expect by the end of the year? And then maybe kind of what you're thinking about as a store growth rate going forward? Thank you.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Yes. So in terms of China, I would say still feel we're early in our journey there. So we've got 154 stores today. We had a goal of approximately 200 in our current Power three times two plan and saw growth beyond that. I'm really pleased with the performance on new stores.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

And I'd also mention we are early in terms of our co located strategy, so where we have stores with high traffic, high sales per square foot and see an opportunity to expand the size of stores to have a more holistic assortment across men's, women's accessories, capitalize on that traffic. We're underway in that strategy in North America to a larger degree and it's largely still in front of us in terms of China.

Jay Sole
Jay Sole
Managing Director at UBS Group

Got it. And can you talk about what the traffic trends were in China? Maybe you talked about what the traffic trends were in The U. S?

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

We have we don't break out specifically on traffic trends, but I would say still seeing strong double digit growth in terms of the China market and nothing notable there.

Jay Sole
Jay Sole
Managing Director at UBS Group

Got it. Thank you so much.

Operator

The next question is from Adrienne Yun with Barclays. Please go ahead.

Adrienne Yih
Adrienne Yih
Managing Director, Consumer Discretionary Analyst at Barclays

Great. Thank you very much. My question is on the inventory. The inventory does have some tariff impact and FX Of the delta from units to dollars at about 7%, how much of that is tariff and how much of that would be the FX? And then secondarily, I guess it's a follow on.

Adrienne Yih
Adrienne Yih
Managing Director, Consumer Discretionary Analyst at Barclays

Are you expecting that tariff inventory to sort of hit the P and L sort of late June and July? And is that when we should expect the commensurate price impact? Thank you.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Hey, Adrienne. So in terms of the impact on dollar inventory, so it is predominantly driven by higher AUCs related to tariffs and then FX, would say. We haven't broken out the details, but not too far off from each other in terms of relativity. And then in terms of the impact on tariffs, we do have, as I mentioned, a more pronounced impact in Q2 in terms of the P and L. So 60 basis points in Q2, because the mitigation actions come in the second half.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

For the second half of the year or sorry, for the full year, the FX sorry, the tariff headwind is 40 basis points with the mitigation actions coming into play towards the second half of the year. I would say in terms of pricing, those actions will start rolling out towards the second half of this quarter and into Q3.

Adrienne Yih
Adrienne Yih
Managing Director, Consumer Discretionary Analyst at Barclays

Okay, great. And then my other question is on the lower product costs, what is driving that? Was it freight or cost engineering? And do you assume that that will neutralize as we go into the back half of the year? Thanks.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Yes. So in terms of product costs, it would be predominantly driven by mix of business relative So I would say right now what's reflected in our guide reflects our forecast in terms of mix of business in the second half of the year. And I wouldn't call out product costs as a variance driver for the full year at this point in time.

Adrienne Yih
Adrienne Yih
Managing Director, Consumer Discretionary Analyst at Barclays

Okay, great. Thanks so much. Best of luck. Thank you.

Operator

The next question is from Lorraine Hutchinson with Bank of America. Please go ahead.

Lorraine Hutchinson
Lorraine Hutchinson
Managing Director at Bank of America

Thank you. Good afternoon. I wanted to focus on SG and A for a minute. It looks quite high in the second quarter. Is there anything changing in your view of the investment needed to drive growth?

Lorraine Hutchinson
Lorraine Hutchinson
Managing Director at Bank of America

Or is this just timing versus planned investments in the second half?

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Thanks Lorraine. Yes, so in terms of Q2, so there are a few factors that are impacting Q2. So I think important to zoom out to the full year. So for the full year, we did guide revenue in line with last time, so 11.15% to 11.3%.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

And the operating margin relative to last time is about up 60 basis points driven by just tariffs and markdown changes. So when you look at Q2 specifically, first I'd note that we did expand our operating margin last year by 110 basis points. It was higher than our full year expansion, which was 50. So therefore, we had assumed some pressure in our operating margin as we planned the year. And then if you look specifically at the year over year SG and A, that would be driven by increased foundational investments in depreciation, strategic investments.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

And then those add backs that we discussed last quarter in terms of expenses, for example, store labor that we added back from a normalized perspective. So relative to the full year, 01/1970 to 190 basis points deleverage in Q2 and 50 basis points for the full year.

Lorraine Hutchinson
Lorraine Hutchinson
Managing Director at Bank of America

Thank you.

Operator

The next question is from Anisha Sherman with Bernstein. Please go ahead.

Aneesha Sherman
Analyst at Bernstein

Thank you. I want to go back to China. Megan, you talked about your store growth there, but I'm wondering if you can share some color around the comp growth. There's been a pretty sizable deceleration year over year. Can you share some color around what's that's being driven by? Is it a macro slowdown or something else? And I know there were some tough compares last Q1 as those compares ease in China as well as in rest of world.

Aneesha Sherman
Analyst at Bernstein

Do you expect to see an acceleration in the comp in the next couple of quarters? Thank you.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

Yes. So in terms of China, we did see a slowdown both in trend and comp. We did have a four point impact, from timing of Chinese New Year. We did also an outsized performance, I would say, in terms of non comp new store openings as well as the smaller portion that we do have co located strategy there. We had an outperformance in terms of revenue growth last year.

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

So even if looking at Q4 to Q1, we were at 39% growth in Q4, so well above expectations. So I would say still pleased with China trends, still strong double digit growth, and do still have the same expectation for the full year of 25% to 30% growth rate for China.

Aneesha Sherman
Analyst at Bernstein

And if I can just follow-up, is China still your best full price market globally?

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

It's still our lowest markdown, yes, so highest full price.

Aneesha Sherman
Analyst at Bernstein

You.

Operator

The next question is from John Pardon me.

Howard Tubin
Howard Tubin
Vice President of Investor Relations at Lululemon

All right. We'll just take one more question. Thanks.

Operator

Thank you. The final question is from John Kernan with TD Cowen. Please go ahead.

John Kernan
Managing Director at TD Cowen

All right. Thanks for squeezing me in, Howard. Just to stay on China and rest of world, obviously, you just talked about it in relation to Anish's question, but there was a sizable decel in the two year stack, if that's the best way to look at it. But do you think you're becoming more susceptible to a macro environment in China now that you're pushing by the end of year, you'd be pushing $1,700,000,000 in revenue? And what are you seeing in Rest of World? There was a decel there as well. Thank you.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

Thanks, John. In terms of our view of our international opportunities, nothing has changed. When I look at our performance in the quarter, and our guide for the year across Mainland China, our Rest of World, and we look at our EMEA and APAC markets, they continue to perform incredibly strong, double digit momentum. We're early relative to market share, early relative to unaided brand awareness, continue to see very healthy new guest acquisition and matriculation with our existing guests, and the way the guest is responding to both our newness as well as our long lineup of core items. So nothing has changed from our vantage point.

Calvin McDonald
Calvin McDonald
CEO at Lululemon

I think as Megan indicated, in some of the markets, we had outsized growth last year. But very, very healthy strong numbers and relative to peer sets and with our market share gains, very excited and see a long runway of growth and opportunity. As I've alluded before, we ended last year at 25% of our business being international and have opportunity we think for a fifty-fifty ratio into the future. So definitely Lululemon is a global brand underdeveloped in these markets and seeing great momentum, a very strong growth and anticipate that to continue.

John Kernan
Managing Director at TD Cowen

Megan, did you give the markdown impact embedded in the gross margin guidance on a basis point level?

Meghan Frank
Meghan Frank
Chief Financial Officer at Lululemon

It did. For the full year, to 20 basis points up to last year.

John Kernan
Managing Director at TD Cowen

Got it. Thank you.

Operator

That's all the time we have for questions today. Thank you for joining, and have a nice day.

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Key Takeaways

  • Total revenue increased 7% (8% on a constant‐currency basis) in Q1 with U.S. up 2%, Canada 9%, China Mainland 22%, and Rest of World 17%, enabling management to maintain its full‐year revenue guidance of 7% to 8%.
  • Gross margin expanded 60 basis points to 58.3% in Q1, driven by lower product costs and improved markdowns.
  • Diluted EPS of $2.60 for Q1 exceeded expectations, and the company repurchased $430 million of stock, reflecting strong cash flow and confidence in long‐term prospects.
  • New product launches such as Align No Line, Daydrift, and Glow Up saw strong guest response and sell‐throughs, with broader distribution planned in the coming quarters.
  • Higher tariffs (up to 30% on China and 10% elsewhere) are expected to pressure margins, with Q2 operating margin forecast to decline about 380 basis points, partially offset by pricing actions and supply‐chain efficiencies.
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Earnings Conference Call
Lululemon Athletica Q1 2026
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