Lululemon 4Q25 Immediate Call Postmortem
Is Lululemon’s BOD trying to send a message to Chip Wilson that a different “Chip” is the better answer? Almost certainly not the same quality level of at least one of Chip Wilson’s candidates in Marc Maurer. Do they really think that even more consumer staples perspectives (already half the BOD) are what this company needs to fix its discretionary product issues? What makes this most comical is they add a Levi’s guy (most recently before decades at P&G) right after an uninspiring denim launch (our opinion). Do they really need to be in denim this badly?
New innovations highlighted include Unrestricted Power (newest technical fabric innovation), Show Zero, Thermal Zone (spelling?). Will continue to scale Show Zero throughout the year. Fewer logos and expect to see a more edited assortment of accessories – thank you as that stuff was getting ridiculous.
The goal in 2026 is to return to healthier levels of full price sales after higher markdown penetration in 2025. New style penetration is 35% in spring. Already seeing better full price sales in Q1 vs. Q4. Is that simply because of the ridiculous levels of promos in Q4? Probably a bit too early to discount the new stuff but guess we will see shortly. Brooke asked about this in Q&A and got the color that Q1 better than Q4 but still down y/y while Q2 should be flat and the real inflection in 2H (I certainly hope so with that compare).
I find it interesting they called out Easy Five in prepared remarks as a “successful new style” but it barely remained in the front of the store upon launch before being relegated to back room obscurity. One game management teams like to play is give premium space to something to ensure the launch is “good” but that can’t last long if the turnover of that space isn’t as good as other product in the catalog… In his own press release today, Chip Wilson seems to think it wasn’t successful so time will certainly tell here…
China seems fine as results stronger than expected despite the benefit of two calendar events. Outerwear (surprisingly) and lounge were standout categories. That is one bear thesis that appears almost 100% wrong now. That said, not sure calling out an event with Yo-Yo Ma is going to help with the increasing view this brand is aging out. But what do I know – comps were up a stupidly high 30% over there (best since 2023).
Seeing green shoots related to new product launches in North America but expect improvement in the region to progress throughout the year “and into 2027”. Not sure people wanted to hear the 2027 part of that statement.
“One time costs with the expected proxy contest this year”. I wonder how much that is going to be relative to the aggregate value of all shares owned by the current BOD who is waging that defense on shareholders money. Certainly isn’t an immaterial amount if they have to call it out (multiple times too)…
Adrienne asked great question on product. Newness is not just new colorways but things the guest has never seen before. That’s quite positive. However, design and merchandising report directly into Meghan – who was the CFO prior to this transition…(we knew this before but it just sounds worse when spoken).
Boss asked a boss level question on the deceleration embedded in guidance from 4% growth in 4Q. Meghan said it’s the ramp of full price.
Hats off to Meghan and Andre for dealing with a highly difficult situation. It’s not their fault they were thrust into what is likely the most difficult corporate situation in the apparel world since…the last time Lululemon went through the same thing. None of this is ideal but sadly every day this situation persists is not a good thing for long term shareholders.
*These are our unabridged quick thoughts and notes from the call. We get them out as soon as possible after the call ends. Management has given some topics to dig deeper into and will circle back afterwards with much more in depth work on what was mentioned. You can find that work (and more on Lululemon and other retail/consumer research) at our website here: M Squared Capital
Originally posted on X and Substack.