Lululemon expects fiscal fourth quarter results at top end of prior forecast

The Vancouver-based company now expects fourth quarter revenue toward the top of its $3.50 billion (€3.36bn) to $3.585 billion (€3.44bn) range, with diluted earnings per share also trending to the high end of the $4.66 (€4.47) to $4.76 (€4.57) guidance. The update reflects better-than-anticipated consumer demand during the critical November and December shopping period.

However, Lululemon’s encouraging sales momentum was overshadowed by mounting governance turmoil. Calvin McDonald is stepping down as CEO on 31 January 2026, with CFO Meghan Frank and Chief Commercial Officer André Maestrini assuming interim co-CEO roles while the company searches for a permanent successor.

Governance crisis overshadows sales strength

The leadership transition comes amid an intensifying proxy battle with founder Chip Wilson, who has nominated three directors to Lululemon’s board and has been publicly critical of the company’s strategic direction. Adding to the pressure, activist investor Elliott Management has acquired a $1 billion (€960m) stake in the company.

The convergence of McDonald’s departure, Wilson’s board challenge, and Elliott’s involvement has created significant governance uncertainty at a time when the company faces intensifying competition in the athletic apparel market. Analysts have expressed concern about the leadership vacuum and strategic direction during this transition period. 

The timing is particularly challenging as Lululemon navigates a shifting retail landscape, with the company needing to address persistent weaknesses in its men’s business while maintaining momentum in women’s apparel and international markets.

International growth offsets Americas weakness

Despite the governance turmoil, Lululemon’s operational performance showed encouraging signs during the quarter. International markets delivered approximately 33 percent growth, with particularly strong performance in China and other APAC regions where the company has been investing heavily in retail expansion and brand awareness.

However, the Americas region continued to decline, reflecting ongoing challenges in Lululemon’s home market. The softer US market throughout fiscal 2025 has been a persistent headwind, contributing to more modest guidance targets compared to the previous fiscal year. The North American men’s business remains a particular weak spot, struggling to gain traction against intensifying competition from established athletic brands and emerging direct-to-consumer players.

The company’s core women’s business continued to show strength, with expanded product offerings and successful marketing campaigns driving consumer engagement during the holiday period. This women’s momentum helped offset the men’s business challenges and delivered the better-than-expected overall results that pushed the quarter toward the high end of guidance.

Margin pressure from tariffs and promotions

Lululemon maintained its gross margin guidance rather than raising it alongside the improved sales outlook, indicating that volume gains have not translated into improved profitability metrics. The company faces multiple margin headwinds including expected tariff impacts, an intensely promotional holiday retail environment, and ongoing investments in new store openings and digital capabilities.

The tariff exposure is particularly concerning as athletic apparel retailers face potential cost increases on imported goods, with Lululemon sourcing significant production from Asia. The company must balance these cost pressures against consumer price sensitivity in an increasingly competitive market. The promotional intensity during the fourth quarter reflected broader retail industry dynamics, with many athletic apparel brands increasing discounting to capture holiday spending. This environment pressured margins across the sector, even for premium brands like Lululemon that historically have maintained pricing power.

Bottom line

The stronger-than-expected fiscal Q4 performance provides positive momentum entering 2026, but the leadership transition and governance uncertainty overshadow operational gains. The interim co-CEO structure is unusual for a company of Lululemon’s size and signals potential complexity in the permanent CEO search while navigating the Wilson proxy battle and Elliott’s influence simultaneously.

The next permanent CEO inherits strong brand equity and international growth potential but must address persistent men’s business weakness, margin pressure from tariffs and competition, and maintain innovation momentum in an increasingly crowded athletic apparel market. Key questions include whether Lululemon can sustain 33 percent international growth rates amid China macroeconomic headwinds while executing retail expansion during prolonged leadership uncertainty.