Q1 2026: Lululemon grows revenue 4% while operating income falls 37%

Lululemon reported first-quarter fiscal 2026 revenue of $2.5 billion, up 4 percent year on year, or 2 percent in constant currency terms. The headline growth concealed a business under significant pressure: operating income fell to $276.9 million from $438.6 million a year earlier, a decline of 37 percent, and diluted earnings per share dropped from $2.60 to $1.69. Gross margin contracted to 54.2 percent.

The results, released June 4, arrived weeks after the company settled a five-month proxy contest with founder Chip Wilson and named an incoming chief executive. The governance overhang has been lifted; the operational questions have not.

China kept Lululemon’s quarter growing while North America pulled the business into decline

The geographic split in the quarter was stark. China Mainland revenue rose 30 percent (23 percent in constant currency) to $478.4 million, with comparable sales up 13 percent in constant currency. The region now accounts for 19 percent of total revenue, up from 16 percent a year ago.

The Americas moved in the opposite direction. Revenue fell 3 percent (4 percent in constant currency) to $1.6 billion. Comparable sales were down 6 percent in constant currency. The US declined 4 percent; Canada fell 6 percent on the same basis.

Rest of World, covering EMEA and Asia-Pacific outside China, grew 13 percent, or 9 percent in constant currency, to $372 million. Comparable sales rose 1 percent in constant currency.

Tariffs and the proxy contest hit the P&L directly

Management was unusually specific about cost attribution on the earnings call. Tariffs accounted for a gross negative impact of 280 basis points on product margin in Q1, partially offset by around 100 basis points of savings from enterprise efficiency initiatives. Markdowns added a further 40 basis points of pressure.

In selling, general and administrative expenses, the company named three specific cost items: the reinstatement of store labor hours and incentive compensation that had been cut in 2025, the timing of brand activations, and costs directly attributable to the proxy contest.

That last item represents governance noise appearing as a line-item drag on operating results.

For the full year, the company now guides operating margin to contract approximately 380 basis points versus 2025. On tariffs, the full-year guidance assumes a lower gross impact than the Q1 hit, with near-full offset expected from enterprise savings.

The critical questions from the earnings call

The analyst session on June 4 surfaced four lines of inquiry that go beyond the reported numbers and will define how the incoming CEO, Heidi O’Neill, assesses what she is inheriting.

Product, not just macro. Management attributed the late-quarter slowdown not primarily to macro conditions but to two specific factors: a spike in negative brand commentary on social media and in the press, and a product activation, the “new look of yoga” campaign, that generated positive guest response to individual styles but failed to produce the halo effect on the broader assortment that had been planned. The weakness was broad-based across demographics and channels, rather than concentrated in a particular consumer segment.

Newness penetration and the assortment question. The company entered 2026 with a target of raising the share of new products in the assortment from 23 percent to 35 percent over the course of the year. At the end of Q1, it stood at approximately 30 percent. The question raised by analysts – whether the underperformance was in new styles or core franchises – did not yield a clean answer: management indicated both areas were affected.

China’s real underlying rate. China’s headline 30 percent growth in Q1 included an eight percentage point benefit from the shift of Chinese New Year into the quarter. The adjusted rate remains strong, but experienced disruption in late April and early May from the same wave of negative brand commentary that hit North America. The underlying trend is now held at around 20 percent, consistent with full-year guidance.

When does speed to market pay off? Lululemon has compressed its main product development cycle from 18–24 months to 15–16 months. It is also chasing 20 percent more volume this year relative to last. Analysts pressed on the timeline for this translating into comparable sales improvement; management indicated benefits would build progressively with each delivery cycle, with technology investment identified as the primary gating factor.

Guidance revised 1% down

Full-year 2026 revenue guidance has been lowered to the range of $11.0 billion to $11.15 billion, flat to down 1 percent versus 2025. The previous range implied modest growth. North America is now expected to decline in the high single digits for the full year, with the US slightly worse than Canada.

What the governance settlement means for the incoming CEO

The proxy contest with Wilson brought three new directors to the board: Marc Maurer, former co-chief executive of On Holding; Laura Gentile, former Chief Marketing Officer of ESPN; and a third seat – to be filled by Oct. 1 – required to carry product and apparel expertise. Wilson, who holds an 8.7 percent stake, agreed to a non-disparagement clause running until approximately mid-2027 in exchange for the appointments.

The Maurer appointment is the most strategically legible. On Holding built its position through disciplined product differentiation and a direct-to-consumer model; Maurer oversaw much of that trajectory as co-CEO.

Wilson’s central critique of Lululemon – that it lost product-first discipline as it scaled – is not resolved by a board appointment. But the composition of the new board, and specifically the mandatory apparel expertise in the third seat, suggests that critique registered.

O’Neill, a former Nike executive, takes the role in September with the proxy fight resolved. The Americas problem is hers to close.