Lululemon Athletica Inc. shares dropped 15% in extended trading after the athleisure retailer reported a second-quarter earnings beat but issued cautious guidance for the remainder of fiscal 2026.
The company posted adjusted earnings per share of $2.92, exceeding the $1.82 consensus estimate by $1.10. This included a $0.86 benefit from tariff refunds and associated interest. Excluding this one-time item, adjusted EPS would have been $2.06. Revenue declined 4% year-over-year to $2.4 billion, missing the $2.46 billion estimate. Comparable sales fell 9%, with a 12% drop in the Americas offsetting a 3% decline internationally.
Gross margin expanded by 200 basis points to 60.5%, driven in part by a 560-basis-point contribution from tariff refunds. Operating margin contracted by 190 basis points to 18.8%.
Management revised its outlook for the third quarter, projecting revenue between $2.29 billion and $2.32 billion, a decline of 10% to 11% from the prior year. The midpoint of $2.305 billion falls short of the $2.53 billion consensus. Third-quarter EPS is expected in the range of $0.93 to $0.98, compared with the $2.41 estimate.
For the full fiscal year, Lululemon now expects revenue of $10.35 billion to $10.5 billion, a decrease of 5% to 7%. The midpoint of $10.425 billion is well below the $11.03 billion consensus. Full-year EPS guidance ranges from $9.48 to $9.73, trailing the $10.84 estimate.
Interim Co-CEO and CFO Meghan Frank stated that the company is taking a prudent approach with its revised outlook while focusing on accelerating growth through stronger product offerings, increased marketing investments, and disciplined expense management.
