Shares of Lululemon Athletica Inc plunged 13% on Friday after the athletic apparel retailer significantly lowered its full-year profit guidance and warned of a deteriorating core North American market and a sharp decline in gross margin. This warning also dragged down the share prices of several other retail peers.

Earnings results showed Lululemon's first-quarter net profit fell 38% year-over-year to $195 million, with gross margin dropping sharply by 410 basis points to 54.2%. Approximately 280 basis points of this decline were attributed to negative impacts from tariffs. Despite this, the company's revenue of $2.47 billion and earnings per share of $1.69 still slightly exceeded market expectations.

What caused greater market concern was the company's outlook. Lululemon revised its full fiscal 2026 revenue forecast down from $11.35 billion to $11.5 billion to a range of $11.0 billion to $11.15 billion. This implies full-year revenue will be flat or decline by 1%, compared to a previous expectation of 2% to 4% growth. The full-year earnings per share forecast was also lowered from $12.10 to $12.30 to a range of $10.95 to $11.15. The second-quarter guidance was similarly disappointing, with projected earnings per share of only $1.76 to $1.81, well below the analyst consensus of $2.68.

Interim Co-CEO and CFO Meghan Frank attributed the weak performance on the earnings call to two main factors: a significant increase in negative commentary about the brand in media and social media, which impacted store traffic and revenue; and secondly, not all new product launches met expectations.

The company's core North American market continues to deteriorate, with first-quarter same-store sales in the Americas region declining 5%, marking the fifth consecutive quarter of decline. In stark contrast, international markets performed strongly, with net revenue growing 22%, and same-store sales in Mainland China increasing by 20%.

Several investment banks lowered their price targets for Lululemon following the earnings report. Analysts at Jefferies noted that the new CEO, Heidi O'Neill, who takes over in September, will need to implement a comprehensive strategic reset. So far this year, Lululemon's share price has fallen approximately 40% and is down more than 60% from its 2023 all-time high.