Lululemon Athletica Inc.
Analysis
The action plan built to fix North America did not work, and the weakness has spread to China and to leggings — the two things that carried the company. Revenue is now guided to fall this year, and a new CEO inherits the fix.
- The weakness spread from one market to the whole company.
China was the growth engine, up 46% in Q3 FY2025; in Q2 FY2026 it grew just 4% there. Management blamed negative commentary about the brand, but with North America also falling, no region is left to carry the company. How much of China's growth now comes from new stores?
- The signature product is shrinking.
Women's leggings fell about 20% in Q2 FY2026 while looser away-from-body styles grew. Those new winners are not covering the loss, so the shrink sits in the brand's signature full-price product, its most profitable business. How big is Lululemon's away-from-body business versus leggings?
- The outlook keeps being cut while spending rises.
The outlook has been cut twice since March, the second taking revenue from modest growth to a decline. Marketing is up to about 6% of sales while store openings and pop-ups are cut, so the spending lands before any sales it earns. How much of Lululemon's marketing increase lands in the second half?
- Faster product developmentThe bull case is that faster product development and a larger share of new styles let Lululemon read demand quicker and win back full-price purchases.
- International store expansionGrowth abroad, where new stores pay back quickly and new markets keep opening, is expected to carry overall revenue while North America works through its problems.
- Brand and community engagementCommunity events and marketing draw large, engaged audiences, which the company believes can rebuild brand heat and bring shoppers back to stores and the website.
- North America traffic declineThe bear case is that traffic fell broadly after negative commentary about the brand, and management has not yet shown how higher marketing spending reverses that.
- Guidance cuts and margin pressureFull-year revenue and profit guidance have been lowered repeatedly, so fixed costs for stores and distribution spread across a shrinking sales base.
- Tariff costs on imported productTariffs and the end of the de minimis exemption raise the cost of goods sold in the United States, and the company's offsets cover only part of the increase.
| Politician | Transaction | Amount | Traded | Filed |
|---|---|---|---|---|
Donald Trump Republican · Executive | Sale | ≥$1K | Jul 27 | Sep 22 |
Donald Trump Republican · Executive | Purchase | ≥$50K | Jun 24 | Aug 22 |
Donald Trump Republican · Executive | Sale | ≥$1K | Jun 18 | Aug 22 |
Donald Trump Republican · Executive | Sale | ≥$100K | Jun 12 | Aug 22 |
Donald Trump Republican · Executive | Sale | ≥$1K | Jun 3 | Aug 22 |
Congressional trading data provided by QuiverQuant
How Lululemon Athletica turned $11.1B of revenue into $2.2B of operating income.
| Revenue | ||
|---|---|---|
| Women's Product | $7.0B | ▲ 4.52% YoY |
| Men's Product | $2.7B | ▲ 4.13% YoY |
| Other Segments | $1.4B | ▲ 7.94% YoY |
| Total revenue | $11.1B | |
| Gross profit | $6.3B | 56.6% |
| Operating income | $2.2B | 19.9% |