Lululemon Athletica Q4 2025 Earnings Call - Interim Team Bets on 35% Newness to Restore Full-Price U.S. Sales

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica1: I would now like to turn the conference over to Howard Tubin, Vice President, Investor Relations for Lululemon Athletica. Please go ahead.

Howard Tubin, Vice President, Investor Relations, Lululemon Athletica: Thank you and good afternoon. Welcome to Lululemon’s fourth quarter earnings conference call. Joining me today are Meghan Frank, Interim Co-CEO and CFO, and André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer. Before we get started, I’d like to take this opportunity to remind you that our remarks today will include forward-looking statements reflecting management’s current forecast of certain aspects of Lululemon’s future. These statements are based on current information, which we have assessed, but by which its nature is dynamic and subject to rapid and even abrupt changes. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business, including those we have disclosed in our most recent filings with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10-Q.

Any forward-looking statements that we make on this call are based on assumptions as of today, and we expressly disclaim any obligation or undertaking to update or revise any of these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our annual report on Form 10-K and in today’s earnings press release. In addition, the comparable sales metrics given on today’s call are on a constant dollar basis. The press release and accompanying annual report on Form 10-K are available under the Investors section of our website at www.lululemon.com. On today’s call, Meghan will share an update on the action plan we laid out for you on our last earnings call. André will discuss our regional performance.

Meghan will return to review our financials and guidance outlook, and then the team will be happy to take your questions. Before I turn the call over to Meghan, I’d like to remind investors to visit our investor site, where you’ll find a summary of our key financial and operating statistics for the fourth quarter, as well as our quarterly infographic. Also, please note that the purpose of today’s call is to discuss Lululemon’s 2025 financial results and 2026 outlook, and we ask that you keep your questions focused on our performance.

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Thanks, Howard. I’m glad to be here today to discuss our Q4 results, our outlook for 2026, and how we are executing our action plan to strengthen our brand, re-accelerate growth, and create value for shareholders. André and I are working side by side with the senior leaders across our organization to drive our strategies forward to improve the U.S. business while also maintaining our international momentum and are making progress to deliver the performance we know is possible in all our regions. We have a healthy and loyal customer base that remains engaged and looking to us for great product and experiences. We have strong teams who are motivated and excited to bring our new innovations and product assortments to our guests.

We are working across the company to refine and advance our initiatives across product creation, product activation, and enterprise enablement, which André and I will speak more about during our call today. We recognize there is more work to be done, and we have been course correcting on a number of fronts, but we are encouraged by the guest response to our recent new product drops and activations. I’m grateful to our teams across the entire organization who remain committed to delivering products and experiences our guests love. Together, we are taking the right steps that will allow us to realize the full potential of Lululemon. Before I speak to our action plan, I would like to call attention to today’s announcement welcoming Chip Bergh to our board of directors. As you likely know, Chip Bergh is the former longtime President and CEO of the iconic brand Levi Strauss.

He’s a seasoned public company executive who brings deep retail and brand expertise, and he has extensive experience guiding successful transformations and driving value creation at global category defining companies. His appointment as a director comes after a comprehensive search by the board and is part of the board’s thoughtful, ongoing refreshment process that has brought five new directors to the board over the last five years. I’d also like to acknowledge David Mussafer, one of our longtime directors, who has informed the board that he won’t be standing for re-election. We are grateful for David’s many contributions to lululemon over the years. With respect to the CEO search, I can share that our board is running a robust search process, and they’ve been meeting with highly qualified candidates. The process is moving forward, and we will provide an update on this topic at the appropriate time.

I’ll now dive into three components of our action plan, product creation, product activation, and enterprise enablement. During the fourth quarter, André and I dove deeper into each pillar of our plan and have been working with the teams across the organization to ensure we enter 2026 moving with focus and speed. We’ve been course correcting where needed to restore and protect our brand health over time. A top priority for the management team as we enter the year is returning to full price sales growth in North America through a series of steps that include the inflection of product newness and reducing the level of markdowns, SKU reduction, and rebalancing the inventory levels. This approach will reinforce our premium positioning that has long set Lululemon apart from others while also protecting operating margin. Let’s drill down into product creation.

Our priorities here are raising the bar on product design, delivering a consistent pulse of innovation, improving our speed to market, and ensuring a relentless focus on product quality. Hopefully, you’ve been in our stores and visited our e-commerce sites and have seen some of our new innovations. I will take a moment to highlight a few of these for you, including Unrestricted Power, our newest iteration of ShowZero, and ThermaZone. Unrestricted Power is a new training collection for women and men. It is constructed from Powerlux, our newest technical fabric innovation, which uses our highest filament yarn count and offers a remarkably soft feel while also providing incredible stretch and support. Guests have responded positively since the launch, and we look forward to an exciting future for this new franchise.

Next, we recently announced an updated version of our ShowZero no-show sweat technology meant for high sweat activities. This newest iteration of ShowZero was developed in collaboration with professional tennis player and Lululemon ambassador Frances Tiafoe and debuted at the BNP Paribas Open at Indian Wells earlier this month. The latest technology conceals sweat while also remaining incredibly lightweight and breathable. We plan to introduce new ShowZero products to guests later this year as we continue to scale the platform across activities and categories. I also wanna mention ThermoZen, our newest collection of insulated jackets and vests. These products offer warmth, water, and wind resistance and superior softness and are a great example of how we are leveraging our considerable expertise in developing technical apparel across our lifestyle and casual offerings.

These are just some of the innovations that our team has been developing, and we are encouraged by the response from guests to these offerings. When looking at our overall product assortment, you’ll see it continue to evolve based on the strategic vision of our creative team. A few specific examples of what you can expect going forward include updates on some of our key lounge and lifestyle franchises, fewer logos, a more focused and coordinated color palette, and a more edited assortment of our smaller accessories. This enables us to present a more refined, uniquely Lululemon product assortment. As we introduce new and evolved product, we also recognize the importance of taking steps to further enhance and protect our product quality. I have been spending time with our supply chain team to ensure that as we shorten our go-to-market timeline, we do not sacrifice on quality.

Maintaining the highest possible quality standards remains paramount for me and all of us at Lululemon. Shifting to product activation, it is incredibly important that we ramp up our efforts to further engage existing guests, bring new guests into the brand, and ensure all guests are made aware of our latest styles and innovations. Let me highlight two of our most recent activations for you, which occurred in the first quarter. The first is Studio Yet. This was a three-week pop-up high-performance training space in Los Angeles, where we offered a variety of fitness classes taught by world-renowned trainers and coaches. The studio was a physical manifestation of our global Yet campaign, which focused on the relationship between going after big goals and the daily work needed to achieve them.

Guest response to Studio Yet was fantastic, with all classes selling out, significant media pickup across mainstream and social channels, and it, along with the community events we hosted in conjunction with the LA Marathon, provided a halo effect and sales lift to our stores in the Los Angeles area. I’ll also highlight the success over the past few weeks of our sponsorship of the BNP Paribas Open tennis tournament in Southern California, one of the most popular tournaments for players and fans. This is the first year of our three-year sponsorship. The long lines in response to our pop-up store, where approximately two-thirds of the visitors were new to Lululemon, shows the significant potential for Lululemon within the tennis community.

These events demonstrate that when we engage with our guests through our unique activations, we see a tangible response, and this continues to reinforce the opportunity for Lululemon going forward. When looking at our approach to integrated marketing, our plans continue to include more product-focused campaigns across social channels, which will leverage Lululemon ambassadors and other influencers to help ensure our guests are aware of new styles, innovations, and updates we’re bringing into our assortment. Next, I’ll turn to enterprise enablement, which includes our efforts to create efficiencies and manage costs across the company. While we have always been prudent with regard to expenses, we’ve been particularly vigilant over the last two years as sales trends in the U.S. have faced headwinds and tariff policy has added pressure.

We are continuing with this vigilance into 2026, and we are targeting meaningful savings as we simplify our operations and focus on scaling more effectively while continuing to invest in key growth initiatives. Key work streams are increasing efficiencies across inventory management, supply chain, and non-merchandise procurement, and reducing complexity while capitalizing on automation and AI opportunities. We know we must improve our performance in North America while continuing our momentum internationally. We have already taken decisive actions to position the business for sustainable growth. Looking forward, we have clear priorities and are moving with focus, speed, and determination as we implement the strategies across our action plan. You can really feel the energy across the organization about the path forward, and the team is excited about the opportunity ahead of us. I’ll now turn the call over to André.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica: Thank you, Meghan. Like Meghan, I’m pleased to be here with you all. In my role overseeing our selling channels across all regions, I have the opportunity to spend considerable time in our stores, meeting with our leaders and educators and hearing from our guests. I’m excited to share the highlights from our markets across the globe. Touching first on North America. We are actively making the changes needed to increase newness, enhance the guest experience in stores and online, and improve our performance. We are building from a position of strength as we remain the number one brand for women’s activewear in the U.S. New guest acquisition, retention, engagement, and key brand relevance metrics will all remain solid in 2025. Let me speak to three of the strategies we are implementing to unlock growth in the region.

First, as Meghan mentioned, we are focused on the growth of our full price business. Looking at 2026, a primary goal in North America is returning the business to healthier levels of full price sales after seeing a higher markdown penetration in 2025. We are already seeing better full price sales in Q1 relative to Q4, and we are targeting further improvement as we move through the year, driven by increased product newness, innovation and operating discipline. Second, we’re enhancing the guest experience, both in store and online. We recognize the importance of our store and e-commerce sites as guest touch points, and we are evolving the experience to better reflect the premium positioning of Lululemon brand. In stores, our localization and curation enhancements continue.

Our new design playbook features an elevated presentation with less density of product to better showcase our new styles and innovations, and to make the stores easier for guests to navigate and shop. We are also sharpening our focus on activity-based merchandising by offering clear destination for our core activities, including run, train and yoga Pilates within the store. These destinations allow for better storytelling and improve the shopping experience for guests. Our new store in Soho reflects these enhancements, and we’ve been very happy with the guest response to these changes there and at other key locations. We will be rolling out these updates to additional doors in North America through 2026. Online, building on the new redesign of the site, we will continue to improve the guest journey with enhancements coming to our product display pages, checkout and overall storytelling.

Third, we are increasing new style penetration across our assortment. Megan already spoke to our product creation pillar, so we’ll just add that in North America, with our new spring merchandise that is already hitting our stores and website, we have increased our new style penetration to approximately 35%. We know that our guests are looking for new styles and product from us, and when we deliver them effectively, we see strong response. In addition to what Megan mentioned, other examples of successful new styles include EasyFive and the Groove Wide Leg. Let me shift to our international business, where momentum remains strong. In China mainline, our guests responding well to our product assortment in Q4, with outerwear and lounge being standout categories. The strength in outerwear was driven by Wunder Puff, which we feature in a localized brand campaign.

More recently, we celebrated Chinese New Year with a campaign featuring world-renowned cellist Yo-Yo Ma, and offer guests the capsule collection comprised of some of our most iconic styles. This is an excellent example of how we continue to capitalize on locally relevant events to engage with guests in unique ways. In our rest of the world segment now, let me highlight South Korea, one of our fastest growing markets. Our localized approach to guest engagement, including targeted celebrity endorsement, continues to resonate well, particularly among our younger guests. I would also highlight the strong response to our new store in Gangnam. This location showcases the newest expression of our brand, similar to what we introduced in Soho. It includes new design elements and detailing and acts as a hub for guests within the local community.

In Milan, we saw the Lululemon brand on the global stage at the Olympics as our partnership with the Canadian Olympic and Paralympic committees continue. These games were our third as the official outfitter of Team Canada, a natural fit for our brand, and help us acquire new guests by working with and outfitting elite athletes who perform at the highest level in their respective sports. To complete my around the world summary, I’ll mention that with our franchise partner, the 100th Lululemon store opened in EMEA in Warsaw, Poland earlier this month. This is an exciting milestone for the EMEA team and continues to demonstrate the long runway for growth within this region. The majority of stores in our international markets are company operated, but we strategically leverage our franchise model where it makes sense.

Poland is a franchise market for us, and in 2026, our plans call for new franchise market in Greece, Austria, Hungary, Romania as well as India. Before I turn the call back to Meghan, I want to express my confidence in the opportunity for Lululemon in every market around the world. I want to thank our team across our stores, distribution centers and corporate offices for your ongoing engagement with our guests and the tremendous enthusiasm you have for our brand. Meghan, back to you.

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Thanks, André. I’ll now turn to our Q4 financial review and guidance outlook. For Q4, total net revenue rose 1% to $3.6 billion. Excluding the 53rd week in Q4 of 2024, net revenue rose 6% or 4% on a constant currency basis and comparable sales increased 2%. Within our regions and channels, excluding the 53rd week and in constant currency, results were as follows. North America revenue is flat with comparable sales down 2%. By country, revenue increased 3% in Canada and was down 1% in the US. In China Mainland, revenue increased 28%, with comparable sales increasing 26%. Results were stronger than anticipated despite two discrete calendar shifts, which negatively impacted Q4, including earlier 11/11 events on our third-party e-commerce platforms and the shift of Chinese New Year into Q1.

Guests responded well to our product assortment with particular strength in outerwear and lounge. In the rest of world, revenue grew by 12% and comparable sales increased by 5%. In our store channel, sales were down 1%. We entered the quarter with a total of 811 stores globally. Square footage increased 11% versus last year, driven by the addition of 44 net new Lululemon stores since Q4 of 2024. During the quarter, we opened 15 net new stores and completed 7 optimizations. In our digital channel, revenues increased 9% and contributed $1.9 billion of top line. By category, men’s revenue increased 3% versus last year, women’s increased 7%, and accessories and others grew 4%.

Gross profit for the fourth quarter was $2 billion or 54.9% of net revenue, compared to 60.4% in Q4 2024. Our gross margin decreased 550 basis points relative to last year and was driven primarily by the following. A 560 basis point decline in overall product margin, driven predominantly by tariff impact and higher markdowns. Tariffs had a gross negative impact of 520 basis points in the quarter, offset by 110 basis points related to our enterprise efficiency initiative, while markdowns increased by 130 basis points. De-leverage on fixed costs was 30 basis points, and foreign exchange had 40 basis points of favorable impact.

Relative to our guidance for gross margin decline of approximately 580 basis points, the upside was driven primarily by a lower tariff impact and regional mix. Moving to SG&A. Our approach continues to be grounded in prudently managing our expenses while also continuing to strategically invest in our long-term growth opportunities. SG&A expenses were approximately $1.2 billion or 32.5% of net revenue, compared to 31.5% of net revenue for the same period last year. The SG&A increase of 100 basis points was in line with our guidance and relates primarily to the negative impact of foreign exchange, fixed cost deleverage, and ongoing investments to build brand awareness. These were partially offset by our ongoing initiatives to prudently manage costs across the enterprise.

Operating income for the quarter was approximately $812 million or 22.3% of net revenue, compared to 28.9% of net revenue in Q4 2024. Tax expense for the quarter was $226 million or 27.8% of pre-tax earnings, compared to an effective tax rate of 29.2% a year ago. The decrease in the effective tax rate relates primarily to a discrete tax benefit realized in the quarter and foreign exchange. The lower tax rate relative to our guidance contributed $0.15 to EPS. Net income for the quarter is $587 million, or $5.01 per diluted share, compared to earnings per diluted share of $6.14 for the fourth quarter of 2024.

Capital expenditures were approximately $183 million for the quarter, compared to approximately $235 million in the fourth quarter last year. Q4 spend relates primarily to investments that support business growth, including our investments in distribution centers, store capital for new locations, relocations and renovations, and technology investments. Turning to our balance sheet highlights. We ended the quarter with $1.8 billion in cash and cash equivalents and nearly $600 million of available capacity under our revolving credit facility. Inventory at the end of Q4 is $1.7 billion, an increase of 18% on a dollar basis. On a unit basis, inventory increased approximately 6%, below our guidance for an increase in the high single digits. The difference between dollar inventory growth and unit inventory growth relates predominantly to higher tariff rates relative to last year and foreign exchange.

We are pleased with the composition of our inventories as we enter the spring season, as it is more reflective of our go-forward vision for the brand. During the quarter, we repurchased approximately 1.4 million shares at an average price of $188. For the full year, we repurchased $1.2 billion of stock. Let me now shift to our guidance outlook for 2026. As I mentioned, we are executing against our action plan with particular emphasis on driving healthier full price sales in North America. We are already seeing green shoots related to our new product launches and our recent brand activations. I want to also acknowledge that an improvement in overall trends in North America will likely progress over the course of the year and into 2027 as we return to a healthier baseline of full price sales.

Let me also mention tariffs. For reference, in 2025, gross tariff costs were $275 million. We were able to offset approximately $62 million of this expense through our mitigation strategies, which was better than our initial expectations. Looking to 2026, we anticipate gross tariff impact of approximately $380 million. With offsets from our enterprise efficiency initiatives of approximately $160 million within gross margin. Turning to our full year 2026 guidance outlook. We expect revenue to be in the range of $11.35 billion-$11.5 billion, representing growth of 2%-4% relative to 2025. By region, we expect revenue in North America to be down 1%-3%, with the U.S. down 1%-3%. Baked into our total revenue guidance for North America is an improvement in full price sales.

We are already seeing better full price selling relative to Q4, and we’d expect positive year-over-year growth in full price to begin in Q2 and continue into the second half, driven by the rollout of new styles, innovations, and core updates over the course of the year. We expect revenue in China Mainland to be up approximately 20%, which takes into account our outperformance in 2025. Trends remain strong in Q1, and we’re expecting a revenue increase of 25%-30%, which includes a modest lift from the shift of Chinese New Year into the quarter. In rest of world, we expect revenue to increase in the mid-teens. Globally, we expect to open approximately 40-45 net new company-operated stores in 2026 and complete approximately 35 optimizations. This will contribute to overall square footage growth in the low double digits.

Our new store openings in 2026 will include approximately 15 stores in North America, including 8 in Mexico and 25-30 in our international markets, with the majority of these planned for China. While we are taking a disciplined approach to capital spending, we continue to see good returns from new store openings and store expansions as these strategies contribute to an improved shopping experience for existing guests, new guest acquisition, building brand awareness, and community engagement. For the full year, we expect gross margin to decrease approximately 120 basis points relative to last year, driven predominantly by deleverage on fixed costs and ongoing investment in new store openings, optimizations, and our distribution center network.

We expect markdowns for the full year to improve modestly and tariffs to have a gross impact of 90 basis points, of which we expect to be able to offset almost all of it. Turning now to SG&A for the full year. While we intend to realize significant savings related to the enterprise enablement pillar of our action plan, we expect deleverage of approximately 130 basis points versus 2025 as we continue to strategically invest in our business to support future growth. These investments include market expansion, improving the guest experience by enhancing our omni capabilities, and growing brand awareness. We are observing additional costs relative to last year as we layer back on certain expenses, including incentive comp, store labor hours, and we have one-time costs associated with the expected proxy contest this year.

When looking at operating margins for the full year 2026, we expect it to decrease by approximately 250 basis points versus last year. For the full year 2026, we expect our effective tax rate to be approximately 30%, an increase from the 2025 effective tax rate of 29.5%. For the fiscal year 2026, we expect diluted earnings per share in the range of $12.10-$12.30 versus EPS of $13.26 in 2025. Our EPS guidance excludes the impact of any future share repurchases. When looking at inventory, we expect dollar growth to be in the mid to high single-digit range through 2026, with the units flat to down slightly.

With leaner inventories and improved chase capabilities, we are in a better position to read and react to guest demand and fuel momentum in stronger performing styles. We continue to have $1.2 billion remaining on our share repurchase program, which we will continue to utilize. Share repurchases remain our preferred method of returning cash to shareholders, and our repurchase levels in 2026 will likely be similar to those in 2025. Finally, for the full year, we expect capital expenditures to be approximately $725 million-$745 million. The spend reflects investments to support business growth, including capital for new locations, relocations and renovations, DC and technology investments. A range of $725 million-$745 million is approximately 6% of revenue. Shifting now to Q1.

We expect revenue in the range of $2.4 billion-$2.43 billion, representing 1-year growth of 1%-3%. We expect to open approximately six net new company-operated stores and complete six optimizations. By region, we expect North America to decline in the mid-single digits, with the US also in that range and Canada tracking slightly lower. We expect China Mainland to increase 25%-30% and rest of world to increase in the mid-teens. When looking at North America, as I mentioned, we are seeing good response to our new product launches and activations and are experiencing better full price selling, but expect the inflection in total revenue to actualize over the course of the year. We expect gross margin in Q1 to decrease by approximately 380 basis points relative to Q1 of 2025.

This decrease will be driven predominantly by higher tariff costs, ongoing investments in store openings and optimizations, and our distribution network. We expect increased tariffs to have a gross negative impact of approximately 290 basis points, with offsets of approximately 110 basis points. We expect markdowns to be up approximately 30 basis points versus last year. While full price selling has improved meaningfully relative to Q4, we expect markdowns to begin to decrease versus prior year beginning in the second half. In Q1, we expect our SG&A rate to deleverage by 330 basis points relative to Q1 2025. This increase will be driven in part by timing related to brand activation, including the BNP Paribas Open, the Milano Cortina 2026, and Studio Yet, as we have more events planned in the first half of the year versus the second half.

In addition, there are discrete costs related to our proxy contest and expenses that we reduced last year but are layering back into this year related to store labor hours and incentive compensation. We will continue to invest strategically in our growth initiatives and IT infrastructure. When looking at operating margin for Q1, we expect it to be 710 basis points lower than 2025 for the reasons I just mentioned. Turning to EPS, we expect earnings per share in the first quarter to be in the range of $1.63-$1.68 versus EPS of $2.60 a year ago. We expect our effective tax rate in Q1 to be approximately 31.5%.

I wanna close today by saying that since André and I have stepped into our interim co-CEO roles, we’ve focused on engaging with our leaders and employees about the opportunities in front of us as we have worked to refine and implement initiatives that are part of our action plan. First and foremost, we are restoring the full price health of our brand, and we are already seeing improvement in Q1. Other actions include testing a new design playbook in stores, rolling out enhancements to our e-commerce site, and working with the product teams to ensure that our design and merchandising choices emphasize athletic and technical apparel, with lifestyle playing an important but supporting role. There is a renewed energy and enthusiasm across the business, in particular where employees are seeing the product as being introduced to guests and is in our pipeline.

In fact, we’ve seen an increase in employee purchases as we introduce new innovations and product, which is an optimistic indicator that we’re on the right path. André and I are encouraged by the progress we’re seeing across the business and we’re inspired by the passion and commitment of our leaders and teams across the world. All this reinforces our confidence in what’s ahead for us. We recognize that it will take some time to see the benefits of these actions, but we are confident that these are the right moves to powerfully drive our brand forward in the near, mid, and long term. We will now take your questions.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica1: Thank you. We will now begin the question-and-answer session. Analysts who wish to join the question queue may press star then one on the telephone keypad. You will hear a tone acknowledging your request. If you’re using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. The first question comes from Brooke Roach with Goldman Sachs. Please go ahead.

Brooke Roach, Analyst, Goldman Sachs: Good afternoon, and thank you for taking our question. When do you think the product assortment will be appropriate to deliver a return to an inflection in North America growth? And how are you thinking about the headwind from the removal of markdowns throughout the year and the introduction of that new full price selling product throughout the year? Thank you.

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Thanks, Brooke. As we mentioned, we are focused on re-accelerating the full price health of our business. In Q1, we will see a meaningful inflection relative to Q4. We expect in Q2 that we will be approximately flat in full price trend in North America, and then flipping positive in the second half of the year. That’s how the year progresses. In terms of markdowns, we are lowering that penetration. As we mentioned, we were up 130 basis points in Q4 and up 60 in the year in 2025. For 2026, we’re expecting a modest improvement in markdowns for the full year, predominantly driven through the second half. We are expecting just a modest increase in Q1.

Brooke Roach, Analyst, Goldman Sachs: Just to clarify, are you seeing any improvement in your base business as you’ve put these new products into the assortment 1Q to date? Or is the improvement largely driven by the new product launches?

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: No, we’re definitely seeing improvement to date. We’ve seen a meaningful inflection in terms of full price coming out of Q4 and into Q1. You know, it will take us some time to inflect, and we think it will be sequential throughout the year, flipping positive, as I mentioned, in the second half. Seeing some really great green shoots mentioned some of these in terms of some new innovations. We launched Unrestricted Power, ThermoZen, and ShowZero, which will be commercialized later this year. We also had an exciting run capsule that launched earlier this month. We’re building on that strength as we move throughout the quarter. It’s still early, but definitely seeing some positive indicators.

Also, would point to we did see employee sales pick up as well over the last few weeks as we introduced new product.

Brooke Roach, Analyst, Goldman Sachs: Great. Thanks so much. I’ll pass it on.

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Thanks, Brooke.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica1: The next question comes from Lorraine Hutchinson with Bank of America. Please go ahead.

Lorraine Hutchinson, Analyst, Bank of America: Thank you. Good afternoon. As you work to inflect the North America sales trajectory to positive, are you doing any reassessing of your marketing, either dollars spent or types of marketing outreach to try to really bring in a new customer and reignite your existing? Or is it more status quo with the activation and grassroots styles?

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Thanks, Lorraine. I’d share, you know, I do think we’re looking at our marketing strategy. Really focusing on engaging the guest, ensuring that newness is front and center and visible. I think you’ll see us shift more into utilizing brand appropriate influencers and ambassadors as we move throughout the year. We are really focused on our activations and engaging with our guests through those means. I would say, you know, you saw some evidence of that in Q1 in terms of us being very active in our activations. With the BNP Paribas Open in Indian Wells with tennis, Milano Olympics. Really excited about the assortment that we showcased there. Then also Studio Yet in LA.

We also did a Chinese New Year activation, this year, this quarter.

Lorraine Hutchinson, Analyst, Bank of America: Thank you.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica1: The next question comes from Adrienne Yee with Barclays. Please go ahead.

Adrienne Yee, Analyst, Barclays: Great. Thank you very much. A couple of questions. André, on the 35% newness, can you talk about kind of whether that is obviously styles which you mentioned or color choice and SKUs, and what products are you sunsetting to make room for the newness? Along those same lines, how does the reporting structure of who makes final decisions for quantity make, you know, what to chase, et cetera, within the merchandising organization? I know Elizabeth Binder reports into you, but just trying to figure out how this, the system is working in terms of that. My final question is how much of the CapEx is AI tech driven, like the tech stack to support AI? And how do you plan to use that, incorporate that into the business? Thank you so much.

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Thanks, Adrienne. We are moving our newness penetration from 23% in 2025 to 35% in 2026. That is, I would say, new product never seen by the guests, is how I’d frame that. It’s not just new color waves on existing products. It’s truly new product. I would say in terms of sunsetting, we do have some SKU reduction as part of just being more pointed in our assortment, and making that newness also more visible in our store and e-commerce expressions. That is a process we’re going through as we assort the line. Jonathan Cheung, who’s our creative director, as well as Liz Binder, our chief merchant, both report into me.

We’ve been leaning in together, you know, as we make these shifts. In terms of CapEx, we do have some investments in the AI space, you know, shoring up our data and baseline so that we can move off of that. Really, I would say our AI initiatives are focused on guest facing, also enhancing our go-to-market calendar and supporting that speed aspect that we’ve discussed. I would say it’s an exciting and important part of how we’re going after that enterprise enablement strategy.

Adrienne Yee, Analyst, Barclays: Great. Thank you very much. Very helpful. Best of luck.

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Thanks.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica1: The next question comes from Laurent with Exane BNP Paribas. Please go ahead.

Laurent, Analyst, Exane BNP Paribas: Oh, good afternoon. Thank you very much for taking my question. Meghan, it was very helpful in terms of understanding the newness of 35%. For the audience, the North American full price realization, can you maybe just unpack that a little bit better in terms of, like, I think you mentioned 1-2 is better than 4-2, but in terms of percentages, where is it now versus couple of years ago, and where do you want that to go back for 2026? Thank you very much.

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Yep. Thanks, Laurent. If we look at 2025, we did have a higher markdown penetration than we would have liked. It’s, you know, illustrated by a 130 basis point increase in markdowns in Q4 and then 60 basis points for the year. We haven’t broken out the penetrations in 2026, but I would share, we expect to see a meaningful improvement in Q1. We’re already starting to see that. We are shifting from the lowest waterline in Q4. We did have a 130 basis points higher markdowns, so that points to having the most pressure on full price. It’s the sequential improvement is meaningful, but it will still under index relative to our total top line.

We do anticipate it’ll flip flat, around flat in the second quarter, and then the second half of the year would flip positive. We’re really helping to enable this both through the newness curation as well as SKU reduction and then the way we’ve positioned inventory for the year. We have positioned units flat to slightly down. Really looking to read the trends on newness, and chase where that’s possible. As we’ve mentioned before, we have developed some capabilities, enhanced capabilities in terms of our product team’s ability to chase into what’s working. We believe this sets us up well for returning to healthy full price sales penetration for the year and building off of that for the long term and in 2026 as the opportunity presents itself.

Laurent, Analyst, Exane BNP Paribas: Very helpful. Then I think you mentioned that square footage should grow low double digits. Just curious, you know, if whenever we find out about the new CEO and if that individual wants to take a fresh look at that commitment, can you maybe just unpack that a little bit more for the audience? How much of that is committed to for 2026? Then just a quick question here on marketing. I think in your 10-K, it’s 5.7% of sales. Where should that go for 2026? Thank you very much.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica: Yeah, on your question, Laurent, about stores. You know, we are taking a disciplined approach to capital spending and looking at our real estate project on a case-by-case basis. We continue to see good returns from new store openings and store expansions as these strategies contribute really to improve the shopping experience. For 2025, to give you a number, NSOs are returning at above 100% ROI across both North America and international markets, representing a payback period of less than a year. We’ll feel confident with that. The strategy of optimization of existing doors in key influential cities to bigger format with proven quality traffic is solid. You know, the productivity of our top larger stores is higher than the average of our fleet.

That is one of the best in the industry with 12 sales per sq ft over $1,400. Globally, to be precise, in 2026, our plan calls for approximately 40-45 net new openings, which yields square footage growth to the low double digits. With NAM approximately 15 openings and international between 25-30 openings, with the majority in mainland China. For the marketing spending.

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Yeah. I’d just add, Laurent, from a store perspective, it’s really a store by store look that the team is doing. Being really mindful of where we’re opening, making sure it’s relevant for the guest, you know, and we’ve got the right positioning in each market. You know, as André Maestrini just mentioned, it’s 15 stores in North America, the majority of which would be in Mexico. So you know, we have just a small handful of new store openings and, you know, we are watching them closely. We would be largely committed through 2026 to our square footage expansion plans, but the team feels really confident in them. I’d say from a marketing perspective, our guidance assumes we’re relatively flat from a rate of sales perspective in terms of marketing spend.

I think what you’ll see is we’re shifting the composition of that spend a bit more towards these impactful guest activations we discussed, as well as utilizing brand appropriate influencers and ambassadors as we move throughout this year. I would say a little bit of a shift in strategy on the spend, same waterline, and we’ll continue to monitor to the extent that you know it’s working for us we’ll continue to push into it. Thanks.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica: Thank you.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica1: The next question comes from Matthew Boss with J.P. Morgan. Please go ahead.

Matthew Boss, Analyst, J.P. Morgan: Great, thanks. Megan, could you maybe speak to the bridge from 4% underlying revenue growth in the fourth quarter to the 1%-3% in the first quarter and 2%-4% for the year? Meaning maybe just if you could elaborate on the balance between the improvement in full price selling that you’re citing relative to what’s offsetting or constraining revenue growth as we think about the course of the year.

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Yep, absolutely. Q4, we’re up 6% excluding the 53rd week. We did guide to 1%-3% for Q1 and then 2%-4% for the full year. I would say it’s really the ramp of full price. We had, I would say, the lowest waterline, as I mentioned in Q4, with markdown over-penetrating. We had 130 basis points of pressure, you know, in the markdown line in Q4. We are improving that in Q1, but it will be still negative in Q1, flipping flat in Q2, and then accelerating in the second half of the year as we continue to build into it and then lap, I would say, the markdown performance that we had in the second half of 2026.

Matthew Boss, Analyst, J.P. Morgan: Great. Megan, just on the more than 200 basis points of operating margin contraction this year, how much of the decline do you see tied to more transitory items? What do you see as the revenue growth necessary to see operating margins return to expansion multi-year?

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Yeah. We guided to 250 basis points decline. I would say the majority of that when you step back from it is add backs of incentive comp and labor that we reduced in 2025, and then also the proxy contest expenses. That’s the majority of it as you step back. Obviously, we’ve got some headwinds and tariffs, but we’re largely offsetting the year-over-year within the year. I do see this as the low waterline that we’ll continue to build upon as we transition that revenue waterline of 2%-4%. We haven’t put a fine point on the leverage aspect. You know, I think it’ll depend on the trajectory of the business, and then there are some decisions that we can make in terms of investment levels.

We’ll definitely share more on that, but definitely expect it to improve from here.

Matthew Boss, Analyst, J.P. Morgan: Great. Best of luck.

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Thank you.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica1: The next question comes from Paul Lejuez with Citi Research. Please go ahead.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica2: Hey, thanks, guys. Lots of focus on the North America full price improvement. I’m curious if we should read that as you guys being happy with full price selling in the rest of the world and China. Maybe to talk about how those regions fare from a full price penetration perspective to the Americas. Also maybe match that with what sort of level of newness do you see in those regions? Have the percentages also gone down, and are they also supposed to go back up in 2025, or has it been more constant there?

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Thanks, Paul. I would say we have not seen the headwind we’ve seen in North America in our international regions in terms of full price. Still happy with the levels we’re seeing there. That said, we do believe that the steps we’re taking in our action plan in terms of product creation and activation will benefit all regions. I would say we’re still pleased with the trends there. I’ll pass it to André just to add some more color on what we’re seeing in the regions.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica: Yeah, absolutely. I think that the model that has been developed to grow and expand in international is working because it generates full attention on the full price. Let me call out the different layers, which is first, a brand first approach. We are building the premium position of Lululemon in activewear market in those key regions. Second, a diversified portfolio of product across the different activities where we want to lead in. Then this obsession of full price and minimal discounting and markdown, and also an elevated presentation in our stores and the guest experience across, not only the key doors, but also our online experience. We are staying true to our community grassroots approach. We also keep standout events that generate organic traffic, like the Summer Sweat Games, for example, in China.

That’s why we are implementing as a playbook to do lululemon Studio that Megan, you mentioned, our participation in the BNP Paribas Open in Indian Wells on new categories that we want to expand. As said, everything we are working on developing new styles and newness at the global level will also benefit all our markets to keep driving the focus and engaging the guest on full price realization.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica2: Thank you. Good luck.

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Thank you.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica1: The next question comes from Michael Binetti with Evercore. Please go ahead.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica0: Hey, guys. Thanks for all the help here today. Could you speak a little bit to the Canada slower sales outlook in first quarter? Is that something you’re seeing today, Megan? Maybe just a few thoughts there. That market’s been trending better than the U.S. for a little bit. I’m just curious what you’re seeing in that market. Maybe you could just help us, you know, you’re shortening the timeline on design from go-to-market. I think you diagnosed that as a pretty long timeframe, 18 months plus. It’s been a big focus for you.

Could you just give us an update on, you know, what you’re seeing there and some of the early progress or opportunities to shorten the lead times, and what you think maybe that could go to as you look to, you know, kinda speed up the go-to-market process here?

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Yep. Thanks, Michael. In terms of Canada, we are inflecting full price across the North America region. The Canadian consumer has been a little bit more sensitive to markdown, so we’re seeing a little bit more of a pronounced impact there, I’d say. That’s what’s driving that differential. But I expect it’s still the same opportunities in terms of assortment shift and focus on guests with our activations, and I think we’ll reset to a better waterline. In terms of the go-to-market calendar, we are going from about 18-24 months. We’re expecting we could go to closer to 12-14 months over time.

I’m really focused on tools, process and systems and leaning into automation, including in the AI space, you know, to lean into that calendar. You know, we did mention that we have a new head of technology who’s got an AI focus. We’re excited about him joining the team and the things that we can unlock in that space. There’s, I would say, a lot of energy in the business around this reduction and simplification of our process.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica0: Okay. Maybe if I could ask one follow-up. I think as I look back at last year, if I look at the first quarter, you mentioned that traffic was a little weaker than you’d liked in the quarter, and the high-value guest was weak as well. You kinda gave us that breakout. Are you seeing better traction with the high-value guests as you start to flow the newness in and you start to get some confidence in the full price selling as you at least start to improve sequentially from the fourth quarter here?

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Yeah, I’d say it’s early in the quarter. You know, I’d like a little more time just to understand what’s going on with the high-value guest. But I would say we’re seeing, as I mentioned, great green shoots on some of the new product launches, and I would expect that extends to that guest as well. We’ll share more on what we’re seeing as it progresses.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica0: Okay. Thanks a lot. Have a good one.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica1: The next question comes from Dana Telsey with Telsey Advisory Group. Please go ahead.

Dana Telsey, Analyst, Telsey Advisory Group: Hi. Good afternoon, everyone, and nice to see the progress. As you think about the performance apparel market and just the activewear market, did you grow share this quarter? Did it stay the same? What did you see in the growth of premium athletic and in performance apparel? Then with the early positive results to the new assortments coming in, is it bottoms, is it tops? What are you learning from that as you develop new products, but for the next timeline for the balance of the year? Thank you.

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Thanks, Dana. In terms of market share, we maintained share in the total apparel market, and we lost about less than a point in activewear. That’s where we stand on that. You know, as André mentioned, we maintained our position as the number one women’s activewear brand in the U.S. In terms of what’s trending for category tops and bottoms, we’re seeing, I would say, some nice performance across both. You know, the Unrestricted Power innovation I mentioned, we did in women’s tights and men’s shorts, as well as a top. Seeing some nice performance there. ThermoZen also was an outerwear innovation that we’re excited about as well.

We did also see some great performance out of a couple bottoms that André mentioned, so EasyFive and the Groove Wide Leg. We had a run capsule, which I would say encompassed both tops and bottoms. I would say it’s both. That had a lot of, I would say, energy around it in terms of fun and excitement in that run capsule. I think, you know, the team’s really energized on building on the learnings in terms of what’s working, continuing to chase into as well as looking at how it informs our creative direction for upcoming seasons.

Operator, we’ll take one more question.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica1: The last question comes from Ike Boruchov with Wells Fargo. Please go ahead.

Ike Boruchov, Analyst, Wells Fargo: Hey there. Meghan, can you just comment on the inventory ending in four Q? How comfortable are you with that? I know the markdowns are still expected to be up a little bit, but maybe just some more anecdotes there. What’s your expectation for inventory as you move into two Q and then kinda the rest of the year?

Meghan Frank, Interim Co-CEO and CFO, Lululemon Athletica: Great. Yes, I would say we’re pleased with both the level and composition headed out of Q4. We guided to unit increase in the high single digits, and we came in up 6. So cleaner than we expected. We did focus on cleaning out seasonal inventory and feel we’re headed into 2026 with an assortment that’s more reflective of our go-forward strategy. In terms of how we’re managing inventory in 2026, I would say, throughout the year, we’d expect to see units approximately flat to slightly down. That would hold true for the end of Q1 as well. So that is part of how we’re supporting driving that full price inflection in our business, and the return to a healthier baseline in terms of penetration.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica0: Thank you.

André Maestrini, Interim Co-CEO, President, and Chief Commercial Officer, Lululemon Athletica1: That’s all the time we have for questions today. Thank you for joining the call, and have a nice day.