VANCOUVER — Lululemon Athletica reported its fiscal fourth-quarter 2025 results Tuesday evening in what one analyst called 'a Q4 beat that changes nothing.' Revenue came in at $3.64 billion, ahead of the $3.58 billion consensus estimate, and diluted earnings per share of $5.01 beat the $4.79 expectation. Comparable sales improved 3%, driven by a 20% surge in international comparable sales. On the surface, the numbers beat. Below the surface, the story is considerably more troubling.
The company's fiscal 2026 outlook sent a shock through the investment community. Lululemon guided for full-year revenue of $11.35 billion to $11.50 billion, representing just 2% to 4% growth — well below the $11.52 billion consensus. More alarming, full-year diluted EPS was guided to $12.10–$12.30, a range that implies a 7% to 9% decline from the $13.26 earned in fiscal 2025. This marks the second consecutive year of declining profitability for a company that, as recently as 2023, was considered one of the most reliable earnings compounders in American retail. First-quarter guidance was even more unsettling, with EPS of $1.63–$1.68 against a consensus of $2.07 — a miss of roughly 20%.
The anatomy of the deterioration is instructive. Gross margin collapsed 550 basis points year-over-year in Q4 to 54.9%, driven by a combination of increased promotional discounting, higher import tariffs — which are expected to cost the company $380 million gross in fiscal 2026 — and an unfavorable product mix. Operating margin fell 660 basis points to 22.3%. The company's largest market, the Americas, saw revenue fall 4% in Q4, and Lululemon has now guided for Americas revenue to decline an additional 1% to 3% in fiscal 2026. Same-store sales in the region have not grown in approximately two years.
Leadership instability compounds the fundamental headwinds. The company has been operating under interim co-CEOs Meghan Frank and André Maestrini since CEO Calvin McDonald departed in December. No permanent CEO has been named, and founder Chip Wilson's ongoing proxy campaign — which has already claimed the planned departure of board member David Mussafer — has created a governance overhang that potential CEO candidates may find unappealing. The board did add Chip Bergh, the former Levi Strauss CEO known for engineered turnarounds, as an independent director — a move seen as a partial concession to Wilson's demands.
The international story offers some consolation. China mainland comparable sales surged 30% in the quarter, and international revenue grew 22% for the full fiscal year. The company expects China to grow approximately 20% in fiscal 2026 and the rest-of-world segment to expand by a mid-teens percentage. But international sales remain a fraction of total revenue, insufficient to offset continued erosion in North America. Inventory ended the year up 18% on a dollar basis, and operating cash flow plunged 29.5% to $1.60 billion — a sign that the quality of earnings has deteriorated alongside the headline numbers.
For investors, Lululemon now presents a classic value-trap question: the stock is down more than 51% over the past year and trades near its 52-week low of $156.64, which could look like a compelling entry point if a new CEO can stabilize North American trends. However, the absence of a permanent leader, the persistence of tariff headwinds, the inventory overhang, and the now-explicit expectation of a second year of EPS decline suggest that patience — not urgency — is the appropriate posture.