Lululemon booked $134.5 million of tariff refunds in its second quarter, plus $4.1 million of interest on them. Together they added $0.86 to diluted earnings per share. Take them away and the quarter looks a lot worse.
Revenue fell 4% from a year earlier to $2.4 billion. Comparable sales dropped 9%, or 10% on a constant-dollar basis. The refunds were for IEEPA tariffs, and they lifted gross margin 200 basis points to 60.5%. Without them, the company said, product margin was still squeezed by tariffs, markdowns and fixed-cost deleverage. Operating income slid 13% to $453.7 million, and operating margin fell to 18.8%.
Where the weakness sits
The Americas were the soft spot. Regional revenue fell 8% and comparable sales fell 12%. U.S. revenue declined 8%, and Canada dropped 11% as reported.
Asia and the rest of the world held up better, though growth cooled. China Mainland revenue rose 4% as reported but fell 2% in constant dollars. Rest of World grew 5% as reported and 6% in constant currency. Management said negative commentary in media and social channels hurt traffic and sales momentum in China. Analysts note that for a brand pushing growth in that market, sentiment matters as much as price.
Management blamed weaker traffic, a soft response to product launches and brand sentiment. Leggings sales fell about 20% in the quarter. Newer women’s bottoms such as Groove Wide-Leg, Align Foldover Jogger, Breezily and an updated Dance Studio Pant did better.
A lower outlook
The company cut its fiscal 2026 forecast. It now expects revenue of $10.35 billion to $10.50 billion, down 5% to 7%, and earnings per share of $9.48 to $9.73. For the third quarter it guided to revenue of $2.29 billion to $2.32 billion, a decline of 10% to 11%, and earnings of 93 cents to 98 cents against $2.59 a year ago. Full-year gross margin is expected to fall about 80 basis points.
The response is a mix of product changes and cost control: more marketing spend, supply chain and procurement savings, tighter discretionary spending, and about 20% more volume bought on a chase basis this year so it can react faster to demand.
