Lululemon Athletica Inc. (LULU) missed expectations on the revenue line in the second quarter, sending LULU shares down in the mid-teens in after hours trading on Thursday, September 3.

Revenues in the quarter were $2.4 billion, below company guidance in the range of $2.450 billion to $2.475 billion and analysts’ consensus target of $2.46 billion. Excluding 86 cents per share in tariff refunds, adjusted EPS in the quarter was $2.06, topping guidance in the range of $1.76 to $1.81 and analysts’ consensus estimate of $1.79.

Meghan Frank, interim co-CEO and chief financial officer, stated: “We experienced a solid start to 2026 as our teams executed with speed, agility, and discipline. Our work to drive improvements in North America resulted in some positive signals in the quarter, including a sequential improvement in full-price sales. More recently, we have been navigating headwinds that have led us to adjust our outlook for the full year. We have assessed the business and are taking additional actions to reposition where needed and further strengthen our product engine. We remain confident in our path forward.”

André Maestrini, interim co-CEO, president, and chief commercial officer, stated: “During the quarter, we continued to grow our lululemon community as we entered new markets and elevated our product, brand, and guest experiences around the world. This work included delivering successful product capsules and activations across train, tennis, and run, as well as implementing enhancements across our store fleet and digital channels that we will build upon in the months ahead. We recognize that we have more work to do, and our teams remain focused on our priorities as we continue our efforts to reignite growth and realize lululemon’s full potential.”

Total net revenue in the quarter decreased 4 percent, or down 5 percent on a constant-dollar (CD) basis, to $2.4 billion for the second quarter. Global comparable sales decreased 9 percent (-10 percent CD) year-over-year (y/y). The decrease in net revenue was said to be primarily due to decreased Americas net revenue, partially offset by increased Rest of World and China Mainland net revenue.

  • Americas net revenue decreased 8 percent y/y to $1.6 billion and comparable sales decreased 12 percent for the quarter. Americas net revenue was 67 percent of total net revenue, compared to 70 percent of total net revenue in Q2 2025.
  • China Mainland net revenue increased 4 percent (-2 percent CD) to $407.1 million in Q2 and comparable sales decreased 2 percent (-8 percent CD). China Mainland net revenue was 17 percent of total net revenue in the quarter, compared to 16 percent of total net revenue in Q2 2025.
  • Rest of World net revenue increased 5 percent (+6 percent CD) to $391.8 million and comparable sales decreased 4 percent (-3 percent CD). Rest of World net revenue was 16 percent of total net revenue in Q2, compared to 15 percent of total net revenue in Q2 2025.

Stores
LULU opened seven new stores in the Americas, one net new store in China Mainland, and one new store in Rest of World in Q2 2026.

At the end of Q2 2026, the company had 825 total company-operated stores, compared to 784 at the end of Q2 2025.

Profitability & Expenses
Gross profit was $1.5 billion, or 60.5 percent of net revenue, compared to $1.5 billion, or 58.5 percent of net revenue, in Q2 2025. Gross profit in Q2 2026 includes $134.5 million of tariff refunds.

Gross margin increased 200 basis points compared to Q2 2025. The increase in gross margin was primarily due to a net increase in product margin of 430 basis points, comprised of:

  • An increase of 560 basis points related to tariff refunds;
  • A net decrease of 150 basis points primarily from higher tariffs, as well as markdowns including credit card affiliate programs, partially offset by higher pricing and lower product costs; and
  • A favorable impact of foreign currency exchange rates of 20 basis points.

The increase in gross margin was partially offset by a net increase in fixed costs as a percentage of net revenue of 230 basis points, driven by higher occupancy and depreciation costs.

In total, the company received International Emergency Economic Powers Act (IEEPA) tariff refunds of $134.5 million plus associated interest of $4.1 million during the second quarter of 2026. These amounts were recognized as a reduction of cost of goods sold and an increase to other income.

SG&A expenses were $1.0 billion, or 41.7 percent of net revenue, in Q2, compared to $951.7 million, or 37.7 percent of net revenue, in Q2 2025. The 400 basis-point increase reportedly relates to fixed cost deleverage, continued investment in guest experience including store labor hours, brand spend, and fees related to the proxy contest. These were partially offset by lower incentive compensation and ongoing initiatives to prudently manage costs across the company.

Operating income was $453.7 million, or 18.8 percent of net revenue, in the quarter, compared to $523.8 million, or 20.7 percent of net revenue, in Q2 2025. Operating income in Q2 2026 includes $134.5 million of tariff refunds which increased operating margin by 560 basis points.

Other income (expense), net increased $4.0 million to $13.7 million from $9.7 million in Q2 2025, primarily due to an increase in interest income driven by $4.1 million in interest associated with tariff refunds.

Income tax expense was $138.1 million in Q2, compared to $162.6 million in Q2 2025, and the effective tax rate was 29.6 percent compared to 30.5 percent in Q2 2025.

Second quarter net income was $329.2 million, or $2.92 per diluted share, compared to $3.10 per diluted share in Q2 2025. Diluted earnings per share in Q2 2026 includes 86 cents per share related to tariff refunds and associated interest, net of tax.

Share Count
Diluted share count for the quarter was 112.9 million compared to 119.7 million in Q2 2025. In Q2 2026, LULU repurchased 2.7 million of its own shares for a cost of $330.0 million.

Capital Expenditures (CapEx)
Capital expenditures were $149.7 million in Q2 2026 compared to $177.9 million in Q2 2025. The Q2 2026 capital expenditures were said to primarily relate to investments that support long-term business growth, including a multi-year distribution center project, store capital for new locations, relocations, and renovations, and technology investments.

Balance Sheet Summary
Cash and cash equivalents were $1.4 billion at the end of Q2 2026 and the available capacity under a committed revolving credit facility was $593.7 million.

Inventories decreased 1 percent to $1.7 billion at the end of Q2 2026 compared to the end of Q2 2025. On a unit basis, inventories decreased 7 percent.

2026 Outlook
For the third quarter of 2026, the company expects net revenue to be in the range of $2.290 billion to $2.320 billion, representing a decline of 10 percent to 11 percent. Diluted earnings per share are expected to be in the range of 93 cents to 98 cents for the quarter. This assumes a tax rate of approximately 30 percent.

For 2026, the company now expects net revenue to be in the range of $10.35 billion to $10.5 billion, representing a decline of 5 percent to 7 percent. Previously, guidance called for revenue in the range of $11.0 billion to $11.15 billion, representing a decline of 1 percent to 0 percent.

Diluted earnings per share is now expected to be in the range of $9.48 to $9.73 for the year. EPS was formerly in the range of $10.95 to $11.15 for the year.

The guidance assumes a tax rate of approximately 30 percent. The 2026 outlook includes 86 cents per share from tariff refunds and associated interest, net of tax recognized in the second quarter of 2026, but does not reflect any further potential tariff refunds.

Image courtesy of Lululemon Athletica