Lululemon Faces Headwinds: Weak Outlook Amidst Proxy Battle and Tariff Concerns

Lululemon Athletica Inc. Delivered a weaker-than-anticipated outlook for fiscal 2026, citing pressures from increased tariffs, higher operating expenses, and a contentious proxy battle initiated by founder Chip Wilson. Although the athletic apparel maker exceeded Wall Street’s expectations for its fiscal fourth quarter, the guidance for both the current quarter and the full year fell short of analysts’ projections.

Q1 and Full-Year Guidance Disappoints

Lululemon anticipates first-quarter sales between $2.40 billion and $2.43 billion, below the estimated $2.47 billion according to LSEG. Earnings per share are projected to range from $1.63 to $1.68, also lower than the expected $2.07.

For the full fiscal year, the company forecasts sales between $11.35 billion and $11.50 billion, underperforming the $11.52 billion expectation. Earnings guidance stands at $12.10 to $12.30 per share, significantly less than the anticipated $12.58.

Navigating Challenges: Tariffs and Expenses

Interim co-CEO Meghan Frank acknowledged the demand for a “course correction” across multiple fronts. CNBC reported Frank highlighted the introduction of a new creative director and early positive responses to new product lines as areas of focus. The company is also working to reduce its product development timeline.

Lululemon is grappling with escalating tariff costs, expected to reach $380 million in 2026, up from $275 million the previous year. Even after mitigation efforts, the net impact of tariffs is projected to be $220 million, an increase from $213 million in 2025. Despite these rising costs, the company has refrained from raising prices significantly, particularly after relying on discounts to boost sales in recent months.

Proxy Battle with Founder Chip Wilson

The company is also facing increased expenses related to its proxy contest with founder Chip Wilson, who has been critical of the board’s direction and is pushing for changes. The New York Times detailed Wilson’s concerns about a disconnect between the company’s creative vision and the board’s understanding of brand power.

In a move partially addressing Wilson’s concerns, Lululemon recently added former Levi Strauss CEO Chip Bergh to its board of directors. Simultaneously, David Mussafer, a board member criticized by Wilson, announced he would not seek re-election at the upcoming shareholder meeting. Reuters reported this development as a win for Wilson.

Regional Performance and Strategic Shifts

While Lululemon continues to experience growth in China and other international markets, sales in the Americas, its largest region, have remained stagnant for approximately two years. The company anticipates a decline in sales in the Americas between 1% and 3% in 2026. Conversely, China sales are expected to grow around 20%, with the rest of the world seeing mid-teens percentage growth.

Lululemon is also shifting away from a reliance on promotional discounts, a strategy implemented to drive sales and manage inventory. The company believes this move, while potentially impacting short-term sales, will restore its position as a full-price brand.

Q4 2025 Performance

Despite the cautious 2026 outlook, Lululemon reported positive results for its fiscal fourth quarter. Earnings per share reached $5.01, exceeding the expected $4.78. Revenue totaled $3.64 billion, slightly above the anticipated $3.58 billion. However, net income decreased to $586.9 million, or $5.01 per share, compared to $748.4 million, or $6.14 per share, in the same period last year.