The athletic apparel giant Lululemon is navigating a complex market environment marked by both innovation and fiscal challenges. As it steps into the second quarter of fiscal year 2026, new product lines, such as the Align No Line leggings and Glow Up leggings, show strong consumer interest. However, these successes come at a time when U.S. consumers exhibit caution, as demonstrated by reduced in-store foot traffic. The company is tackling pressures from tariffs and fluctuating gross margins while aiming to sustain its growth trajectory across different markets. Alongside burgeoning sales in China, where expansion remains promising, Lululemon seeks to balance innovation in fashion with pragmatic financial strategies.
Comparisons highlight some variance in performance and strategy in previous quarters. Tariffs remain a consistent source of pressure on Lululemon’s gross margins, not unlike previous years when similar challenges were encountered. Revenue and earnings for the last fiscal year reveal a steady growth pattern, albeit with occasional dips in specific quarters due to unpredictable consumer behavior. Product innovation continues to be a recurrent theme, resonating with consumer preferences over multiple periods.
What Are Analysts Forecasting?
Current expectations for Lululemon’s Q2 2026 earnings revolve around revenue projections of $2.54 billion, paired with an earnings per share (EPS) forecast of $2.85. Future quarters in the fiscal year predict revenues slightly higher, with Q3 set at $2.56 billion and EPS rising to $2.95. Analysts foresee a total fiscal year 2026 revenue of $11.20 billion, reflecting confidence despite market hurdles.
How Does Lululemon Plan To Navigate Challenges?
Lululemon confronts a gross margin compression, around 110 basis points for fiscal year 2026, largely accredited to tariff impacts. Modest price increments and sourcing adjustments are strategic measures the company plans to employ in mitigating these pressures, with relief anticipated in the second half of the year. Despite the constraints, the company remains optimistic about consumer popularity in its innovative offerings.
The brand’s sales in China, a bright spot in its portfolio, advanced notably, with a 21% rise in Q1, and expectations for further growth between 25% and 30% for FY26. Expanding to about 200 stores in the region by the end of the year solidifies Lululemon’s commitment to tapping into this lucrative market. In this context,
Lululemon stated, “Mainland China continues to be our most profitable market, showing robust growth.”
However, the U.S. market presents challenges, as consumer traffic declines led to a mere 1% comp gain in Q1. Lululemon’s management acknowledges that in the U.S., buyers are
“cautious and intentional” with their expenditures
, highlighting the importance of adapting to consumer sentiments to sustain financial stability.
Inventory decisions also play a critical role, as stock levels rose by 16% year over year in Q1. The company is planning for 10–20 basis points more in markdowns for the second half, a strategy intended to prevent overstock issues given the potential for fluctuating consumer activity.
The challenges of entering and sustaining growth in the current retail market necessitate Lululemon’s focus on robust strategies amid pressures from external factors like tariffs and changing consumer trends. Analysts remain attentive to the company’s ability to navigate this intricate landscape, forecasting a sustained yet cautious growth trajectory given its recent financial movements and future strategic plans.
