Lululemon Q2FY26 revenue down 4%, full-year guidance slashed amid headwinds
- Lululemon Q2FY26 revenue fell 4% YoY to $2.42 billion, missing estimates
- Full-year revenue guidance slashed to $10.35-$10.50 billion from prior $11.15B
- Americas revenue dropped 8% while China Mainland grew 4% on reported basis
- Gross margin expanded 200 bps largely due to $134.5M tariff refund benefit
- New CEO Heidi O'Neill joins next week to evaluate strategic direction
*this image is generated using AI for illustrative purposes only.
Lululemon Athletica Inc (NASDAQ: LULU) reported second-quarter fiscal 2026 revenue of $2.42 billion, missing consensus estimates of $2.46 billion. The athletic apparel maker posted earnings per share of $2.92, driven by a significant one-time tariff refund.
Total revenue declined 4% year-over-year, driven by an 8% drop in Americas net revenue that offset a 4% increase in international sales. Total comparable sales fell 9% year-over-year on a constant currency basis.
Financial Performance
The company’s inventory decreased 1% year-over-year to $1.7 billion. Lululemon ended the quarter with 825 total stores after opening nine new company-operated locations. Digital channel revenues decreased 6%, contributing $0.9 billion or 39% of total revenue.
| Metric | Q2FY26 Actual | Consensus Estimate | Change |
|---|---|---|---|
| Revenue | $2.42 billion | $2.46 billion | -4% YoY |
| EPS | $2.92 | Not disclosed | N/A |
Gross profit for the second quarter was $1.46 billion, or 60.5% of net revenue, compared to 58.5% in Q2 2025. This increase of 200 basis points was driven primarily by a 560 basis point benefit from IIPA tariff refunds. Excluding the refund, gross margin was 50 basis points better than guidance. SG&A expenses were approximately $1.01 billion, or 41.7% of net revenue, up 400 basis points from the prior year due to fixed cost deleverage and proxy contest fees.
Revised Outlook
Lululemon issued significantly weaker guidance for the third quarter and full year. Third-quarter revenue is expected to be between $2.29 billion and $2.32 billion, well below the estimate of $2.53 billion. Earnings per share for the quarter are projected at 93 cents to 98 cents, compared to estimates of $2.43.
For the full fiscal year, the company lowered its revenue outlook from $11 billion to $11.15 billion to a new range of $10.35 billion to $10.50 billion. This contrasts with analyst estimates of $11.04 billion. Full-year EPS guidance was cut from $10.95 to $11.15 per share to a range of $9.48 to $9.73 per share, against estimates of $10.96.
Regional Headwinds and Brand Sentiment
Management highlighted challenges in brand sentiment and traffic, particularly in North America and China Mainland. In North America, revenue declined 8%, with the US down 8% and Canada down 11%. In China Mainland, revenue increased 4% on a reported basis but declined 2% on a constant currency basis, impacted by negative media commentary and a softer-than-expected Tmall 618 event. Rest of World revenue increased 5% on a reported basis.
Product performance was mixed, with leggings sales declining approximately 20% in Q2 as guests shifted toward away-from-body silhouettes like the Groove Wide Leg and Aligned Fold Over Jogger. Accessories declined 13%. Management stated it is chasing approximately 20% more volume this year relative to last year to react to guest demand.
Strategic Initiatives and Cost Management
Strategic initiatives include focusing on product innovation, increasing marketing investments, and optimizing store operations. The company is reducing its expense base through supply chain efficiencies and AI-powered automation. Discretionary spending is being moderated across travel, professional fees, and store labor hours.
Lululemon plans approximately 35 net new store openings this year, down from previous guidance of approximately 40. Pop-up stores will be reduced from 65 at the end of last year to approximately 40 by the end of 2026. Incoming CEO Heidi O'Neill joins next week to evaluate strategy and current action plans.
What the Numbers Show
The divergence between the Americas and international segments highlights regional headwinds. While international revenue grew 4%, the Americas segment contracted by 8%. Given that the Americas is typically the larger contributor, this regional weakness drove the overall 4% decline in total revenue and the 9% drop in comparable sales. Additionally, the Q2 EPS result of $2.92 included an $0.86 per share benefit from tariff refunds, indicating that underlying operational profitability faced pressure despite the top-line miss.
Balance Sheet Position
Lululemon exited the quarter with approximately $1.4 billion in cash and cash equivalents. Interim co-CEO and CFO Meghan Frank stated that teams remain focused on accelerating growth by strengthening product offerings and increasing marketing investments while maintaining disciplined expense management.
Frank noted that the company is taking a prudent approach with its revised full-year outlook as it navigates challenging dynamics. Lululemon shares fell 16.40% in after-hours trading to $101.82.
How will incoming CEO Heidi O'Neill's strategic priorities differ from the interim leadership's approach to reversing the 8% revenue decline in the Americas?
To what extent will the shift in consumer preference toward 'away-from-body' silhouettes permanently alter Lululemon's product mix and inventory management strategies?
Will Lululemon maintain its current store opening pace of 35 net new locations, or will it further consolidate physical footprint to offset digital channel weakness?
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