露露柠檬：正处于转型关键期

Jessica Tian+1 917 344 8413 Rating Market-Perform Jed Hodulik+1 917 344 8594 Price Target LULU 180.00 USD(205.00OLD) Lululemon: In the thick of it Transformations take time, and Lululemon is currently in the thick of it, with markdowns stillelevated and top-line growth negative, and margins declining. Mgmt expects progress throughthe year 2026, but it’s too early to underwrite that with confidence. Meanwhile, an ongoingCEO search and activist investor position adds uncertainty. We recommend staying on thesidelines until we have more clarity on the path forward. The business remains challenged, with slow progress expected through 2026.Although Mgmt pointed to “green shoots” in customer response and sequential markdowns, the progress will be slow, with 2026 guidance pointing to LSD% US decline and 250 bpsmargin decline, driving ~HSD% EPS decline. What could a new CEO do? Short-term, not much. As the CEO search continues, there islimited impact a new leader could have on 2026: Product design takes 18-24 months, newstore openings (+40-45) are committed through the year, tariffs remain a headwind (90 bps),and deleverage will continue to weigh on margins. Cost control is an easy short-term leverbut, without growth, will not be rewarded by the market and may further hurt the business.Higher marketing is already a drag on margins and isn’t boosting the top line (yet), so seemsunlikely to be an easy lever for 2026. In short, FY26 trajectory is fairly set and the earliestimpact a new leader can have is on FY27. Investment ImplicationsWe cut our PT to $180 (vs. $205 prior) driven by an FY26 EPS cut to $12.96 (vs. $13.47 prior). We maintain our ~14x multiple, as we expect progress to move slowly through the year.A new CEO could be a short-term catalyst on sentiment (though not really on operationalperformance this year). DETAILS Other related work: US Sportswear demand tracker (January 2026)US Apparel & Specialty Retail: What's in our shopping basket for 2026?Lululemon: US growth still negative; CEO catalyst a positive signLululemon: The new newness - Downgrade to Market-Perform KEY TAKEAWAYS FROM THE Q4 PRINT Q4 sales grew 4% cc, excluding the 53rdweek impact, the high-end of Mgmt’s 2-4% guide,driving a slight beat onrevenue. By region, Americas sales were flat (with -2% comp); China grew 28% cc (with +26% cc comp); and RoW grew 12%cc (with 5% cc comp). Including the 53rdweek headwind, sales growth was flat cc, Americas -5% cc, and International +14%cc (China +21% cc, RoW +6% cc). Margins beat slightly, driven entirely by GM.Gross margin declined 550 bps YoY to 54.9% (vs. 54.6% guide and 54.8%Street), driven by higher tariffs (520 bps), increased markdowns (130 bps), higher occupancy costs, (30 bps), and new creditcard affiliate programs, partially offset by tariff mitigation (110 bps) and favorable FX (40 bps). SG&A were 32.5% of sales, inline with Street and guide, which reflects 100 bps of deleverage, driven by FX headwinds, fixed cost deleverage, and ongoinginvestments to build brand awareness, partially offset by cost managing initiatives. Overall, EBIT margin came in at 22.3% (-650bps YoY vs. guide of -680 bps). EPS came in at $5.01 (vs. $4.66-4.76 guide and $4.78 Street),driven by sales and margin beat, but also, in part, lower-than-expected tax rate. PROGRESS ON THE TRANSFORMATION Transformations take time, and Mgmt has painted FY26 as a year of transition, with the setup most challenged in Q1 beforegradually improving. Key areas of progress highlighted: Full price selling:Markdowns have been a major headwind through FY25, especially in H2 (60 bps for FY25, 90 bps for Q3,130 bps for Q4) - we are seeing this in our real-time data as well, as markdown breadth reached ~80% at peak in Q4 (Exhibit3). The issue is almost entirely in North America, as full-price discipline has remained healthy internationally. Going into FY26,although Q1 is already looking better vs. Q4 (as we see in our data as well - Exhibit 3) it remains pressured YoY as guidance isfor a 30 bps headwind. Q2 is expected to be the inflection point (~flat YoY) and H2 is where markdowns should finally becomea tailwind as Lululemon laps the elevated promotions of the last few months, resulting in a “modest” FY tailwind. Driving therecovery is Mgmt’s plan to tighten inventory (units guided flat to slightly down through 2026), higher new style penetration, andimproved chase capabilities within product teams. New products:New style penetration is increasing, on track for ~35% of assortment in 2026 in North America, vs. 23% in2025. Mgmt noted the several new product launches are resonating well in early Q1 (see some examples and photos below inExhibit 7 through Exhibit 10): e.g. Unrestricted Power (in Training), ThermoZen outerwear, and EasyFive pants have seen strongearly sell-through, and Mgmt see further opportunities to commercialize these franchises later in the year. We see this improvedtraction reflected in Reddit feedback, w