lululemon (LULU) Q1 FY27 earnings call: guidance and Q&A

How much of the top-line weakness is due to fashion shifts vs. Lululemon's strategy? What is the new item penetration, and how will margins stabilize, particularly regarding clearance?

Meghan Frank stated that weakness stems from negative brand commentary and underperforming product launches, not broader market shifts. Newness is about 30% of the assortment. Q2 markdowns are expected to be up 50 bps, with sequential improvement in the second half, leading to flat to modest improvement for the full year.

“we're expecting a modest -- flat to modest improvement in markdowns for the full year. So we're having a bigger impact in spring/summer clearance in Q2 with an expectation of markdowns up 50 basis points, and then some recovery as we move into the second half.”

asked by Dana Telsey · answered by Meghan Frank

Is the underperformance of new products a risk for international markets, or are those customers more drawn to core franchises and less sensitive to newness?

Andre Maestrini explained that international markets have a more diversified sales composition. Core franchises, with new colors and iterations, remain a stronger growth driver in these markets compared to North America, suggesting less sensitivity to newness issues.

“by bringing the core franchise to life with different colors, different iterations, is still a growth driver in international that plays stronger in those markets than our original North American market.”

asked by Rakesh Patel · answered by Andre Maestrini

Can you detail the progression of Americas revenue through Q1 and into May, and how it relates to the Q2 outlook and H2 improvement opportunities?

Meghan Frank noted Americas Q1 revenue was -4%, with February and March being strong. Trends softened in late April and May. Q2 is guided to a low double-digit decline for North America. H2 assumes slight improvement, but current guidance does not embed significant impact from ongoing initiatives, suggesting potential upside.

“I would say our expectation for North America in Q2, a decline of low double digits, and then generally in line in the second half of the year at this point. We obviously described a number of actions we're taking in the business in terms of investment into brand to shift the narrative there and drive brand heat as well as some of the product activations we're pursuing, including chasing an incremental 20% relative to last year, still managing inventory well in line with our trend.”

asked by Matthew Boss · answered by Meghan Frank

What are the assumptions for the second half guidance, and what impact are SKU reductions in North America having on conversion or sales productivity?

Meghan Frank clarified that H2 guidance is consistent with current underlying trends, not assuming significant impact from initiatives. Andre Maestrini added that a 15% SKU reduction, sharper merchandising, and reduced markdowns in stores are showing encouraging initial responses, contributing to a more premium shopping experience.

“We decided to have a less dense presentation of our products featuring these 15% fewer SKUs. And that, as a matter of fact, allows us to better highlight the new styles and innovation.”

asked by Michael Binetti · answered by Andre Maestrini

What learnings have been gained from underperforming new style launches, and how will this influence future design? Does the traffic shift over-index to any specific consumer demographic?

Meghan Frank acknowledged learnings from the 'new look of yoga' campaign not having the expected halo effect, emphasizing the importance of color and activation. She stated that the traffic reduction was broad-based across all demographics, not over-indexing to any specific cohort.

“No. We really did see a broad-based traffic reduction, which was really all demographics.”

asked by Brooke Roach · answered by Meghan Frank

Can you elaborate on the social media issues, their origin, duration, resolution, and any lingering impact?

Meghan Frank attributed negative commentary to factors like the proxy contest and questions about product composition in mid-April. While these stories have subsided, the company has not yet seen a return to pre-disruption trends, impacting both the U.S. and China.

“A couple to mention would be, obviously, we had the proxy contest during that period as well as we had some questions around the composition of some of our products in mid-April. As I mentioned, these stories have died down and subsided, but we have not yet seen a return to our pre-disruption, I'd say, trends.”

asked by Jay Sole · answered by Meghan Frank

Can you quantify the increased marketing spend and its allocation? What are the thoughts on new store returns and future unit growth targets?

Meghan Frank stated marketing investment is up 10-15% (6-6.5% of sales) and will fund activations like the Great Wall yoga, SeaWheeze, and NYC yoga series. New stores continue to show a 1-year return on capital, with optimizations at 2-3 years. While some stores pushed to FY28, the company remains disciplined and focused on the right market experience.

“we've increased our marketing investment. We are now taking it to approximately 10% to 15% above last year. So it's in the range of 6% to 6.5% of sales versus last year at 5.6%.”

asked by Janine Stichter · answered by Meghan Frank