Lululemon Athletica Inc. Q4 FY2025 earnings call

Megan and Andre discussed action plan components: product creation (raising design bar, innovation, speed to market, quality; examples like Unrestricted Power, ShowZero, Thermozone), product activation (Studio Yet pop-up, BNP Paribas Open sponsorship), enterprise enablement (cost efficiencies, inventory/supply chain/ procurement, automation/AI. Andre spoke on North America strategies to increase newness, enhance guest experience (store localization/curation, activity-based merchandising, online improvements), international momentum (China Mainline response to product, rest of world growth including South Korea, Milan Olympics partnership, franchise store milestones), and 2026 store opening plans.

Total net revenue rose 1% to $3.6 billion in Q4. Excluding the 53rd week, net revenue rose 6% or 4% on constant currency basis and comparable sales increased 2%. North America revenue flat, comparable sales down 2%; Canada up 3%, U.S. down 1%. China mainland revenue up 28%, comparable sales up 26%. Rest of the world revenue grew 12%, comparable sales up 5%. Store channel sales down 1%, digital channel revenues up 9% contributing $1.9 billion. Men's revenue up 3%, women's up 7%, accessories and others up 4%. Gross profit $2 billion, 54.9% of net revenue, down 550 basis points from last year.

2026 revenue expected $11.35 - $11.5 billion, 2%-4% growth. North America revenue down 1%-3%, U.S. down 1%-3%, full-price sales improvement expected. China mainland revenue up ~20%, Q1 expected 25%-30% growth. Rest of world revenue mid-teens growth. Globally open ~40-45 net new company-operated stores, complete ~35 optimizations. Gross margin expected to decrease ~120 basis points. SG&A e-leverage ~130 basis points. Operating margin expected to decrease ~250 basis points. Effective tax rate ~30%. EPS $12.10 - $12.30. Inventory dollar growth mid-high single digits, units flat to slightly down. CapEx ~$725 - $745 million. Q1 revenue $2.4 - $2.43 billion, 1%-3% growth. North America decline mid-single digits, China mainland 25%-30% growth, rest of world mid-teens growth. Gross margin Q1 expected to decrease ~380 basis points. SG&A rate e-leverage 330 basis points. Operating margin Q1 expected 710 basis points lower. EPS Q1 $1.63 - $1.68.

Q: When do you think the product assortment will be appropriate to deliver a return to 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?

A: In Q1 will see meaningful inflection relative to Q4, expect Q2 flat in full price trend in North America and flipping positive in second half. Markdowns expected to improve modestly, modest increase in Q1.

Q: 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?

A: Focus on engaging guest, newness front and center, shift to utilizing brand appropriate influencers and ambassadors, active in activations like BNP Paribus open, Milan Olympics, Studio Yacht, Chinese New Year activation.

Q: Andre, 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? And then 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. And then 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?

A: Newness is new product never seen by guests, not just colorways. Skew reduction as part of assortment. Jonathan Chung, creative director, and Liz Binder, chief merchant, report to Andre. CapEx has investments in AI space, focused on guest-facing, enhancing go-to-market calendar and speed.

Q: Megan, 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 a little bit better in terms of like, I think you mentioned 1Q is better than 4Q, but in terms of percentages, where is it now versus a couple of years ago and where do you want that to go back for 2026?

A: 2025 had higher markdown penetration, Q4 had 130 basis point increase in markdowns, 60 basis points for the year. Expect meaningful improvement in Q1, shift from lowest water line in Q4, flip flat in Q2, second half positive.

Q: Matthew Boggs with J.P. Morgan. Could you speak to the bridge from 4% underlying revenue growth in the fourth quarter to the 1% to 3% in the first quarter and 2% to 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?

A: Q4 up 6% excluding 53rd week, Q1 guided 1%-3%, full year 2%-4%. Ramp of full price, Q4 had 130 basis points higher markdowns, improving in Q1 but still negative, flipping flat in Q2, accelerating in second half.

Q: Paul Legere with Citi Research. 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 air from a full price penetration perspective to the Americas. and 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?

A: International regions not seeing same full price headwind as North America, pleased with trends. Steps in action plan will benefit all regions, newness development global level benefits all markets.

Q: Michael Benetti with Evercore. Speak 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. And then Maybe you could just help us, you know, 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. You could 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, kind of speed up the go-to-market process here.

A: Canada consumer more sensitive to markdown, driving differential. Go-to-market calendar going from 18-24 months to closer to 12-14 months, focusing on tools, process, systems, automation including AI.

Q: Dana Telsey with Telsey Group. 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 the premium athletic and the performance apparel? And then with the early results, positive results to the new assortments coming in, is it bottoms? Is it tops? And what are you learning from that as you develop new products for the next timeline for the balance of the year?

A: Maintained share in total apparel market, lost less than a point in activewear. Maintained number one women's activewear brand in U.S. Nice performance across both tops and bottoms, learnings informing creative direction.

Q: Ike with Wells Fargo. Megan, can you just comment on the inventory ending in 4Q? 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. And then what's your expectation for inventory as you move into 2Q and kind of the rest of the year?

A: Pleased with inventory level and composition ending Q4, guided unit increase high single digits, came in up six. Expect units approximately flat to slightly down in 2026 and NQ1, supporting full price inflection.