Shares plunged nearly 10 percent in after-hours trade after Lululemon cut its fiscal 2026 outlook to US$11.0 billion to US$11.15 billion, despite a quarterly revenue and earnings beat. The company reported Q1 revenue of US$2.47 billion and diluted EPS of US$1.69, topping LSEG consensus, but trimmed full-year sales and cut annual EPS guidance to US$10.95 to US$11.15. Interim CEO Meghan Frank pointed to "spikes of negative commentary in the media and on social channels" and product launches that "have not generated the anticipated guest response", and an incoming chief executive is due to take the role as the business tries to restore momentum.

The headline numbers and the guidance point in opposite directions: quarterly sales and profit beat, forward guidance much weaker. Lululemon reported fiscal first-quarter revenue of $2.47 billion and diluted earnings per share of $1.69 for the three months ended May 3, topping LSEG consensus expectations of $2.43 billion and $1.68 per share. Yet the company trimmed its full-year sales range to $11.0 billion to $11.15 billion from $11.35 billion to $11.50 billion and cut full-year EPS guidance to $10.95 to $11.15, versus a prior range of $12.10 to $12.30.

Guidance cut and market reaction

The downgrade sent an immediate signal to investors, who punished the stock. Shares fell nearly 10 percent in extended trading after management released the new outlook, and the share price has slid about 40 percent year to date as of Thursday's close. Analysts polled by LSEG had been expecting full-year sales of $11.48 billion before the revision, and LSEG consensus for the current quarter was $2.60 billion in sales and $2.68 in EPS, figures Lululemon now says it will miss.

For the current quarter the company forecast sales of $2.45 billion to $2.48 billion and earnings per share of $1.76 to $1.81, well below LSEG's $2.60 billion and $2.68 expectations. That gap between a beat for the past quarter and weaker forward guidance is the central puzzle analysts will be parsing, with attention on North American traffic and how new product lines are landing with customers.

Product and reputation problems, and management response

Management laid out operational and reputational drivers behind the downgrade. Meghan Frank said the company has seen "spikes of negative commentary in the media and on social channels" and conceded recent product launches "have not generated the anticipated guest response." Those aren't abstract issues for a premium apparel brand; Lululemon paused sales of a specific leggings style in mid-April after customer complaints that the product was see-through, a move that put quality and fit squarely in the spotlight.

Mastheads

Comparable sales were mixed across regions, adding texture to the company's message. Overall comparable sales rose 1 percent year on year in the quarter, but comparable sales in the Americas fell 5 percent, marking the fifth straight quarterly decline in Lululemon's largest market.

International sales grew 22 percent year on year, but they remain a smaller share of total revenue and haven't offset the weakness in North America.

The company has also weathered a high-profile proxy fight. Founder Chip Wilson initiated the contest late last year, and it was resolved after Lululemon agreed to appoint two of the three nominees Wilson had proposed. Management said it's taking concrete steps to fix product execution, including adjustments to product design cycles, shortening time to shelf, and strengthening the product development engine to move more quickly from concept to store.

Those moves appear aimed at repairing both the merchandise mix and brand sentiment. The pause on the leggings line highlighted how quickly product issues can become reputational problems in the social media era. Management described the steps as part of a broader effort to restore momentum while it manages the near-term hit to traffic and sales in North America.

Market reaction reflects the uncertainty built into that plan. Investors focused on the downgraded full-year guidance rather than the quarter's beat.

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Whether those changes can reverse a fifth straight quarterly decline in North American comparable sales will determine if the company can steady the stock.

This article was created with AI assistance.