Lululemon Athletica (LULU 2.84%) shareholders are ready to forget about 2025. As of Dec. 16, the consumer discretionary stock is down a gut-wrenching 46%. Investors that bought an S&P 500 index fund would've witnessed their money grow 17%. That underperformance is startling.
As we think about Lululemon in 2026, here are the three most important things that investors need to watch.
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Demand in the U.S. needs to pick up
The U.S. is Lululemon's biggest market, as it represented more than half of the company's revenue in the third quarter of 2025 (ended Nov. 2). Having a strong position in a country whose citizens have tremendous buying power is what every consumer brand seeks. However, things haven't been going too well lately.
I suspect one of the main reasons Lululemon shares have been under so much pressure is because demand in the U.S. has been lackluster. Sales in this country declined 3% year over year in the third quarter. At the same time, the Chinese market registered an explosive 46% gain.
Lululemon is hopeful that a focus on introducing fresh product assortments can reignite customer interest in the world's largest economy.
Lululemon must maintain its brand position
It's difficult to find lasting success in the apparel industry. There's so much competition from rivals across the board. And consumer preferences are always changing, which can be hard to predict for even the most seasoned industry executives. Lululemon stands out because it has built a leading position in the market thanks to its powerful brand recognition, known for premium merchandise that has historically commanded pricing power.
This is exemplified by Lululemon's gross margin, which continues to be impressive, coming in at 55.6% in Q3. That's significantly higher than industry stalwart Nike (gross margin of 42.2%). It's also better than consumer tech giant Apple's product gross margin of 36%.
Lululemon's success in 2026 and over the long term depends on the brand maintaining its relevance. This comes down to product innovation and having the right marketing strategies in place.
NASDAQ: LULU
Key Data Points
A new CEO is on the way
When Lululemon reported its latest financial results, the business announced that Calvin McDonald, CEO since 2018, will be stepping down at the end of January 2026. Meghan Frank, chief financial officer, and André Maestrini, chief commercial officer, will be interim co-CEOs after McDonald's departure until a replacement is found.
Anytime there's a leadership change without a successor already picked out, it introduces uncertainty. Investors will want a new CEO who has the right experience to lead the business. And it's important that this person clearly explains what the strategic priorities are to jump-start Lululemon's revenue growth. This will help the company gain the market's confidence.
