lululemon athletica inc. (LULU Quick QuoteLULU - Free Report) is likely to witness a bottom-line decline when it reports first-quarter fiscal 2026 results on Jun. 4, after market close. The Zacks Consensus Estimate for fiscal first-quarter revenues is pegged at $2.4 billion, indicating 2.6% growth from the year-ago quarter's reported figure.

The consensus estimate for the company's fiscal first-quarter earnings is pegged at $1.67 per share, suggesting a 35.8% decline from the year-ago quarter’s actual. Earnings estimates have moved down by a penny in the past seven days.

The Vancouver-based company has been reporting steady earnings outcomes, as evident from its bottom-line surprise trends in the past several quarters. lululemon has a trailing four-quarter earnings surprise of 7.9%, on average. Given its positive record, the question is, can LULU maintain the momentum?

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for LULU this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

lululemon has an Earnings ESP of -6.40% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here.

Key Insights on Trends to Define LULU’s Q1 Results

lululemon continues to benefit from the progress with its Power of Three X2 growth strategy. The plan focuses on three key growth drivers — product innovation, guest experience and market expansion. LULU is expected to deliver solid revenue growth in the fiscal first quarter through product innovation, enhanced guest experience and aggressive international expansion under the plan.

International markets, led by Mainland China, continue to post outsized growth, while the men’s category is gaining share. Digital investments are strengthening the omnichannel ecosystem and disciplined store expansion is supporting brand visibility. On the last reported quarter’s earnings call, the company noted that trends in Mainland China have been strong in the first quarter of fiscal 2026, driven by a shift of the Chinese New Year into the quarter.

On the last reported quarter’s earnings call, the company continued to make steady progress in executing its action plan, with a clear emphasis on improving the sales quality in North America by driving a higher mix of full-price transactions. The company noted that early signs of traction are encouraging, supported by product launches and a series of recent brand activations that are helping to re-energize consumer engagement.

For the first quarter of fiscal 2026, management anticipates net revenues of $2.4-$2.43 billion, indicating 1-3% year-over-year growth. Revenues for China Mainland are likely to increase 25-30% and the Rest of World is expected to rise in the mid-teens. EPS for the fiscal first quarter is expected to be $1.63-$1.68, whereas it reported EPS of $2.60 in the prior-year quarter. Our model predicts revenues for the China Mainland business to increase 25% year over year for the first quarter of fiscal 2026.

However, LULU faces near-term pressure from soft North America demand and significant margin contraction. Higher markdowns, tariffs and SG&A investments weighed on profitability, while cautious guidance signals slower growth and continued operating margin pressure.

North America, lululemon’s largest and most mature market, has been witnessing a softness due to uneven traffic trends and increasingly cautious consumer spending, particularly in discretionary categories. The impact has been most visible in the women’s category, a core driver of the brand’s North American business. Slower momentum in North America limits consolidated growth and raises concerns about market saturation. Increased promotional activity across the broader apparel space has also intensified competition, making it harder to drive full-price sales. Until demand stabilizes and traffic improves, North America is likely to remain a drag on near-term revenue growth. 

For the first quarter of fiscal 2026, the company expects North America revenues to decline in the mid-single digits. Revenues in the United States are expected to decline in the mid-single digits, while revenues in Canada are expected to track slightly slower. Our model predicts revenues for the Americas business to decline 4.9% year over year for the fiscal first quarter, with a 6.2% fall in the United States and a 0.1% rise in Canada.

lululemon’s margins are expected to remain under pressure in the to-be-reported quarter due to higher product costs, increased markdowns, unfavorable channel mix and tariff pressures. Management indicated that elevated promotional activity, particularly in North America, is expected to have weighed on the merchandise margin as the company worked to clear slower-moving inventory. Higher freight, input and supply-chain costs also contributed to the decline, limiting leverage despite revenue growth. 

On its last reported quarter’s earnings call, management projected a 380-bps year-over-year decline in the gross margin in the fiscal first quarter due to higher tariff rates, and investments in store openings, optimizations and the distribution network. Increased tariffs are expected to create a headwind of 290 bps on the gross margin, with 110 bps of offsets. Markdowns are projected to rise 30 bps year over year. Though full-price selling has improved from fourth-quarter fiscal 2025, the company expects markdowns to decline beginning in the second half. We expect adjusted gross profit to decline 4.2% in the fiscal first quarter, with a 380 bps dip in the gross margin.

For the first quarter of fiscal 2026, management anticipates SG&A, as a percentage of sales, to deleverage 330 bps year over year, driven in part by the timing of brand activations, including the BNP Paribas Open, the Milan Olympics and Studio. With a greater concentration of events planned in the first half of the year, the company expects additional pressure from discrete costs related to the proxy contest, as well as the reintroduction of expenses reduced last year, particularly in store labor hours and incentive compensation. The company also plans to continue investing in growth initiatives and IT infrastructure. 

LULU expects the first-quarter fiscal 2026 operating margin to contract 710 bps year over year. We expect SG&A costs to rise 11.1% in the fiscal first quarter, resulting in a 710-bps decline in the operating margin.

LULU’s Price Performance & Valuation

lululemon’s shares have exhibited a downtrend in the past three months, losing 25.6% compared with the industry’s fall of 10.1%. The company has also underperformed the Zacks Consumer Discretionary sector’s decline of 6.1% and the S&P 500’s growth of 10%.

lululemon’s YTD Performance

Image Source: Zacks Investment Research

The LULU stock has underperformed V.F. Corporation (VFC Quick QuoteVFC - Free Report) , which has declined 8.1% in the past three months. The stock also lagged Ralph Lauren Corporation (RL Quick QuoteRL - Free Report) and PVH Corp. (PVH Quick QuotePVH - Free Report) , which have rallied 6.2% and 44.5%, respectively, in the same period.

At its current price of $131.04, the LULU stock trades 12.4% above its 52-week low of $116.63 and 61.5% below its 52-week high of $340.25.

From the valuation standpoint, the company trades at a forward 12-month P/E multiple of 10.38X, below the industry average of 17.38X.

Image Source: Zacks Investment Research

Investment Thesis

lululemon is navigating a challenging retail backdrop, with inflation, elevated interest rates and softer discretionary spending weighing on consumer behavior. Premium and luxury categories, particularly in the Americas, remain under pressure, while tariffs present an additional headwind. Despite these near-term challenges, the company continues to execute against its long-term growth strategy.

Momentum is supported by lululemon’s Power of Three ×2 strategy, which focuses on doubling revenues through three key pillars: international expansion, growth in the men’s business and deeper digital engagement. This diversified approach is helping the company offset macro pressures while pursuing meaningful structural growth opportunities.

International markets remain key growth drivers, with China central to lululemon’s plan to scale global revenues. Combined with ongoing digital investments and continued expansion in men’s apparel, the company appears well-positioned to build resilience and create long-term value.

Conclusion

No matter how the stock responds to the upcoming first-quarter fiscal 2026 results, lululemon’s disciplined execution and strong brand equity continue to support its long-term outlook. Progress under the Power of Three ×2 strategy, led by international expansion, digital engagement and momentum in the men’s category, provides meaningful growth avenues.

However, near-term challenges, including softer demand in the Americas, tariff-related cost pressures and margin deleverage, are likely to weigh on lululemon’s upcoming results. Given these offsetting factors, investors may prefer to stay cautious and wait for clearer signs of demand stabilization in North America before turning more constructive on the stock. For existing shareholders, the long-term strategy provides a basis for staying the course.