Lululemon Cuts Outlook After Disappointing Quarter

Lululemon athletica inc. cut its full-year revenue and earnings forecasts after reporting second-quarter results for the quarter ended Aug. 2, 2026, citing softening demand and intensified competition that pressured comparable sales and prompted a more cautious near-term plan.

Q2 Results and Tariff Refund Impact

Lululemon reported net revenue of about $2.42 billion, down 4% year over year from roughly $2.53 billion. Net income was approximately $329 million, and diluted earnings per share (EPS) was $2.92, compared with $3.10 in the prior-year quarter. Gross profit totaled near $1.5 billion, with gross margin widening to about 60.5%. This margin included a roughly 560-basis-point boost from tariff refunds under U.S. trade laws, totaling about $134.5 million in refunds and interest. The tariff refund added approximately $0.86 to reported EPS, implying underlying EPS near $2.06. Operating margin declined about 190 basis points to roughly 18.8%.

The company said the tariff refunds, linked to the International Emergency Economic Powers Act or similar regulations, were treated as one-time regulatory and tax items rather than ongoing operating income. This distinction lifted reported margins while masking weaker underlying profitability.

Global comparable sales fell about 9%, or roughly 10% on a constant-dollar basis. Comparable sales in the Americas dropped about 12%, while international sales declined around 3%. Management attributed the declines to lower store traffic and weaker conversion rates, with e-commerce only partly offsetting in-store weakness. The company opened a net 14 company-operated stores during the quarter, primarily in China and other international markets, bringing the total to about 825 stores.

Revised FY2026 Guidance and Strategy

Lululemon lowered its full-year outlook, now expecting fiscal 2026 revenue between $10.35 billion and $10.50 billion, implying a 5–7% decline from prior guidance of $11.00 billion to $11.15 billion. Diluted EPS guidance was cut to a range of $9.48 to $9.73, down from $10.95 to $11.15. Earlier in the year, the company had forecast second-quarter revenue of $2.45 billion to $2.475 billion and EPS of $1.76 to $1.81, implying a mid-single-digit sales decline for the year.

Management described the revised outlook as a “prudent approach,” citing anticipated softening demand in key markets and intensifying competition. Near-term priorities include strengthening product assortment, increasing marketing investment, and accelerating product and activation initiatives to restore full-price sales and traffic. Meghan Frank, interim co-chief executive officer and chief financial officer, said, “While we continue to navigate some challenging dynamics, we are taking a prudent approach with our revised full-year outlook.”

The guidance revision was announced ahead of a planned CEO transition to Heidi O’Neill and follows an earlier downgrade to fiscal 2026 expectations, reinforcing concerns about the durability of Lululemon’s growth and product strategy.