Lululemon reports weak guidance as proxy battle, tariffs weigh on bottom line

Core Viewpoint - Lululemon has provided a weak outlook for 2026, citing tariffs, increased expenses, and a proxy battle with its founder as significant factors impacting its financial performance [1] Financial Performance - For the first quarter, Lululemon expects sales between $2.40 billion and $2.43 billion, below the estimate of $2.47 billion, with anticipated earnings per share ranging from $1.63 to $1.68, also lower than the estimate of $2.07 [2] - For the full fiscal year, sales are projected to be between $11.35 billion and $11.50 billion, below the expectation of $11.52 billion, with earnings guidance of $12.10 to $12.30 per share, significantly weaker than the estimate of $12.58 [2] - In the fiscal fourth quarter, net income was $586.9 million, or $5.01 per share, down from $748.4 million, or $6.14 per share, a year earlier, while sales rose slightly to $3.64 billion, up about 1% from $3.61 billion [4][9] Strategic Initiatives - The company is focused on an action plan to correct various operational issues, including a new creative director and a reduction in speed to market [3] - Lululemon is attempting to move away from discounting strategies to drive sales, aiming to return to a full-price business model over time, despite expecting this to weigh on near-term sales [6] Cost Pressures - Lululemon anticipates tariffs will cost the company $380 million in 2026, an increase from $275 million in the previous year, with a net impact expected to be $220 million, up from $213 million in 2025 [7] - The company is facing higher expenses related to marketing, labor, incentives, and costs associated with the proxy contest with founder Chip Wilson [9] Market Dynamics - While parts of Lululemon's business are growing, particularly in China with expected sales growth of around 20%, same-store sales in the Americas have not grown for nearly two years, with a projected decline of 1% to 3% in 2026 [12][13]