Kayode Omotosho
3 min read
What Happened?
Shares of athletic apparel retailer Lululemon (NASDAQ:LULU) fell 17.7% in the afternoon session after the company reported a decline in second-quarter net revenue and slashed its full-year sales and profit guidance. According to the company’s press release, Lululemon reported net revenue of $2.42 billion, down 4.3% year-over-year, alongside a 9% decline in total comparable sales. GAAP diluted earnings per share came in at $2.92, down from $3.10 last year.
However, this profit figure included $134.5 million in International Emergency Economic Powers Act (IEEPA) tariff refunds, which artificially inflated the gross margin by 560 basis points and added $0.86 to diluted EPS, the company said in its supplemental financial disclosures. Excluding the non-recurring tariff benefit, underlying operating profits fell 13.4% to $453.7 million, with Americas comparable sales down 12%. Consequently, management lowered its full-year 2026 revenue guidance to between $10.35 billion and $10.50 billion and trimmed its full-year earnings forecast to a range of $9.48 to $9.73 per share, according to the release. To combat slowing customer traffic and soft product rollouts, Lululemon is also seeking to navigate negative brand sentiment and consumer pushback in China, according to Fast Company.
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What Is The Market Telling Us
Lululemon’s shares are somewhat volatile and have had 10 moves greater than 5% over the last year. But moves this big are rare even for Lululemon and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 12 months ago when the stock dropped 18.4% on the news that the company cut its full-year revenue and profit guidance, signaling a weaker outlook ahead. The company lowered its annual revenue forecast to $10.93 billion at the midpoint and its earnings per share guidance to $12.87 at the midpoint, which missed analyst expectations.
This disappointing forecast overshadowed its second-quarter results, where the company actually beat profit estimates with an EPS of $3.10. However, other signs of slowing momentum were evident. Revenue for the quarter grew 6.5% to $2.53 billion, narrowly missing expectations. More concerningly, same-store sales growth decelerated sharply to just 1% year-on-year, a significant drop from its historical performance. The company’s operating margin also compressed, falling to 20.7% from 22.8% in the same period last year, indicating reduced profitability.
