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lululemon Athletica (LULU) is heading higher after beating expectations in its Q4 (Jan) report last night. While EPS and revenue both came in ahead of consensus, profitability still declined as LULU continues to grapple with tariff pressure and higher markdowns, while revenue was flat yr/yr at $3.6 bln. LULU had already indicated in January that Q4 results were likely to land toward the high end of its prior outlook, so the stronger quarter was not a major surprise. Instead, the focus was on its guidance, with Q1 EPS of $1.63-1.68 and revenue of $2.40-2.43 bln both below expectations, while FY27 guidance also came in light, with EPS of $12.10-12.30 and revenue of $11.35-11.50 bln.

• Comp sales increased 3%, accelerating from 1% in Q3, though the regional split remained notable, with Americas comp sales down 1% and international comp sales up 20%.
• While still negative, Americas comps improved from down -5% in Q3, while international comps accelerated from up 18%, supported by continued strength in China, where comp sales increased 26%.
• North America revenue was flat in Q4, with U.S. revenue down 1% and Canada up 3%, reinforcing that the core pressure remains in its largest market.
• Gross margin declined 550 bps yr/yr to 54.9%, pressured mainly by tariffs and higher markdowns. LULU expects gross margin to decline 380 bps in Q1 and 120 bps for the full year, reflecting gross tariff costs of about $380 mln in 2026 ($275 mln in 2025), though it expects markdowns to improve and much of the tariff pressure to be offset through enterprise efficiency initiatives.
• Encouragingly, LULU has seen healthier full-price sell-through to start Q1, reflecting early traction from its new product launches and brand activations. That underpins its expectation for full-price sales in North America to turn positive yr/yr beginning in Q2, although LULU cautioned a broader improvement in total revenue trends will likely take time and build through 2026 and into 2027.

Briefing.com Analyst Insight

LULU delivered some encouraging Q4 results, but its guidance reinforces the pressure it continues to face from tariffs, markdowns, and softer North America demand. Comp sales improved sequentially, helped mainly by an acceleration in international growth, and while Americas comps also improved, they remained negative, underscoring that its largest market is still under pressure. One encouraging sign is that LULU has seen healthier full-price sell-through to start Q1, suggesting its recent product launches and brand activations may be supporting the early stages of a turnaround. However, LULU also cautioned that a broader improvement in trends will take time, while the extended proxy contest adds another layer of uncertainty. For now, we think the improving comps and full-price sell-through are helping support shares today, but with guidance below expectations, investors will likely remain focused on whether healthier full-price selling can continue, how the proxy situation unfolds, and whether spring 2026 product newness can help drive a more meaningful improvement in North America.