Lululemon Athletica (LULU.US) held its fiscal year 2025 earnings conference call. The company forecasts full-year FY26 revenue in the range of $11.28 billion to $11.48 billion, representing year-over-year growth of 2% to 4%, with earnings per share (EPS) projected between $12.00 and $12.30. For the first quarter, revenue is anticipated to be $2.435 billion to $2.465 billion (up 1% to 3% year-over-year), with EPS of $1.70 to $1.80.
The operating margin for FY26 is expected to decline by approximately 250 basis points, primarily due to the reinstatement of incentive compensation and labor costs, expenses related to a proxy contest, and tariff impacts estimated at $70 million to $80 million, which are largely expected to be offset by hedging activities within the year.
Inventory units in Q4 increased by 6% year-over-year, which was better than the guidance of high-single-digit growth. For the full FY26, inventory units are projected to be flat to slightly down, aimed at supporting a recovery in full-price sales. The company plans a net addition of 40 to 45 new stores globally in FY26, with approximately 15 in North America and 25 to 30 internationally, the majority of which will be in Mainland China. Total square footage growth is expected to be in the low double-digits.
Management reported that North American comparable store sales increased by 2% in Q4, while international comparable store sales surged 18%. Excluding the impact of the 53rd week, overall comparable store sales growth was 6%. Restoring full-price sales in North America is a key focus; discount penetration rose by 130 basis points year-over-year in Q4 and increased by 60 basis points for the full FY25. For FY26, the company expects a significant improvement in full-price trends in Q1 compared to Q4, with trends approaching flat in Q2, and turning positive in the second half of the year. Inventory units remaining flat to slightly down, aligned with new product launch cadence, will support the recovery in full-price sales.
In Mainland China, sales grew 26% in Q4 and 40% for the full FY25. The international business model is performing well, characterized by a brand-first strategy, a core focus on full-price selling, community grassroots marketing, and premium in-store experiences. Strong growth momentum continues in markets like Australia and South Korea.
During the Q&A session, management addressed several key points. Regarding the return to positive full-price sales growth in North America, they indicated a significant improvement is expected in Q1 versus Q4, with trends nearing flat in Q2 and turning positive in the second half of FY26. Discount penetration, which increased by 130 basis points YoY in Q4 and 60 basis points for FY25, is projected to see slight improvement for the full FY26, primarily in the second half, with a minor increase still anticipated in Q1.
Management noted visible improvements in the business, citing a significant inflection point in full-price performance from Q4 to Q1, with positive "green shoots" observed. New product innovations like Unrestricted Power, ThermoZen, and ShowZero are slated for broader scaling later in the year, and a recent running capsule collection launch has generated excitement. Employee purchasing has also increased following new product introductions.
Marketing strategies are under review to enhance customer engagement and ensure new products have prominent placement. Increased utilization of KOLs and ambassadors aligned with the brand, alongside event activations, are planned.
The new product penetration rate is expected to increase from 23% in FY25 to 35% in FY26, referring entirely to new styles rather than new colorways of existing products. SKU rationalization is underway to refine the product assortment and increase the visibility of new items. Capital expenditure includes some investment in AI, primarily focused on strengthening data foundations and supporting customer-facing applications, optimization, and speed initiatives.
The FY26 store expansion plan is largely finalized, with new stores and remodels demonstrating strong returns on investment. The marketing spend as a percentage of revenue is expected to remain largely flat in FY26, though the allocation will shift towards impactful customer activations and KOL/ambassador partnerships.
The bridge from Q4's underlying revenue growth of 4% (or 6% excluding the 53rd week) to Q1's guided 1%-3% growth is attributed to the pace of the full-price recovery, with Q4 representing the low point for pricing pressure. Full-year revenue growth of 2%-4% is driven by this expected recovery trajectory.
The majority of the projected ~250 basis point operating margin decline in FY26 is attributed to the reinstatement of previously reduced costs and one-time proxy contest expenses, with tariffs largely hedged. Management views this as the margin low point, expecting improvement heading into FY27.
Internationally, full-price sales have not experienced the same pressure as in North America, and the business model remains focused on full-price selling, brand positioning, product diversity, premium experiences, and grassroots marketing. Successful initiatives like the Summer Sweat Games in China are being expanded to other markets.
In Canada, sales moderation in Q1 is partly attributed to greater consumer sensitivity to discounts, but the same strategic adjustments applied in North America are expected to help. Efforts to compress the product design-to-market cycle from 18-24 months toward 12-14 months are ongoing, leveraging process improvements, AI, and automation.
While it's early in the quarter for definitive trends among high-value customers, positive signals from new product launches are expected to extend to this segment. The company maintained its share in the overall apparel market in Q4, though it ceded less than 1 percentage point in the activewear segment, retaining its position as the top brand in women's athletic apparel in the US. New product categories across tops, bottoms, and outerwear are performing well.
Management expressed satisfaction with Q4 ending inventory levels and composition, which came in cleaner than guidance. For FY26, inventory units are projected to be flat to slightly down throughout the year, supporting the return to healthier full-price sales penetration.
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