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lululemon athletica's (LULU) 1Q26 earnings report is triggering a steep selloff in the stock, driven by disappointing 1% comparable sales growth and intensifying concerns over tariff-related earnings pressure. The company reported Q1 EPS of $2.60, edging past analysts' expectations, continuing its long-standing trend of beating EPS expectations, though the magnitude of this beat was notably smaller than historical norms. However, the primary catalyst for the stock’s decline was LULU’s Q2 EPS guidance of $2.85–$2.90, well below the consensus estimate, and a trimmed FY26 EPS outlook of $14.58–$14.78. 

Despite the earnings pressure, LULU’s gross margin remained a bright spot, expanding by 60 basis points in 1Q26 to 58.3%, driven by improved product margins and operational efficiencies. This strength is being offset by significant headwinds, including increased tariffs on imports from China and Mexico, which are expected to raise costs and compress margins in FY26. Foreign exchange headwinds and deleverage from fixed costs amid slower sales growth further exacerbate the earnings challenge, while macroeconomic uncertainty and cautious consumer spending are dampening demand, particularly in the U.S., where traffic declines have persisted.

• The Americas region, LULU’s largest market accounting for roughly 75% of revenue, continued to struggle, with comparable sales declining 2% (or 1% on a constant dollar basis), following flat comps in 4Q25. This marks a continuation of weakness driven by a combination of company-specific missteps, such as prior inventory shortages and a lack of newness in women’s product offerings, and broader macro headwinds, including reduced discretionary spending.
• To address these challenges, LULU has restructured its product team to enable faster decision-making within merchandising and has focused on refreshing product lines with new colors, prints, and patterns, as evidenced by the strong initial reception of its Daydrift product line. While these efforts have shown some early signs of traction, U.S. traffic remains soft, suggesting a prolonged recovery timeline.
• LULU's International business, a key growth driver, saw comparable sales growth slow to 6% (7% on a constant dollar basis), a significant deceleration from 22% in 4Q25. In China Mainland, comp growth dropped to 7% from 27% in constant currency in the prior quarter. While China remains a high-potential market with only 151 stores at the end of FY24, management has acknowledged macro uncertainties, including weakening consumer sentiment, as contributing factors to the slowdown there. Still, LULU has ambitious plans for further expansion in China, aiming to make it their second-largest market globally by 2026.
• The company's Q2 revenue guidance of $2.535-$2.560 bln was largely in-line with expectations, and it also reaffirmed its FY26 revenue outlook of $11.15–$11.3 bln, reflecting 7–8% growth (excluding the 53rd week). However, the Q2 EPS miss, and FY26 EPS guidance cut is the focal point today. Key drivers of the weakened earnings outlook include incremental tariff costs, which management expects to partially offset with modest price increases on select products, alongside FX pressures and deleverage from fixed costs due to slower U.S. sales.

LULU’s selloff reflects disappointment with its lackluster guidance, driven by tariff-driven cost pressures and a challenging retail environment where consumers are increasingly trading down or avoiding discretionary purchases. While the company’s brand strength and international expansion plans provide a foundation for long-term growth, near-term headwinds, particularly in the U.S., pose significant risks to earnings.