Lululemon cuts outlook after soft Q2 sales

Lululemon (LULU) reported fiscal second-quarter revenue of about $2.42 billion, coming in below the roughly $2.46 billion analyst consensus. Despite the top-line shortfall, the company delivered diluted GAAP earnings per share of $2.92, which topped expectations. The combination of a revenue miss and an earnings beat highlighted a quarter where profitability metrics outperformed while sales growth weakened.

Gross margin expanded by about 200 basis points to roughly 60.5% for the quarter. This improvement reflected both operational performance and the impact of a one-time benefit that lifted reported margins above what underlying trends alone would imply.

A key driver of the earnings outperformance was the recognition of $134.5 million in pre-tax IEEPA tariff refunds. After tax, this benefit was equivalent to about $0.86 per share, materially inflating reported EPS for the quarter. The refund also represented a large, roughly 560 basis-point benefit to operating-margin metrics in the period, significantly enhancing profitability measures.

Management characterized the tariff refund as a meaningful factor in margin expansion, distinguishing it from ongoing, recurring drivers of profitability. As a result, investors and analysts are likely to separate this one-time benefit from the company’s core operating performance when assessing the health of the business.

Beneath the headline earnings beat, Lululemon’s (LULU) demand indicators softened. Total comparable sales declined roughly 9%–10% year-over-year in the second quarter, signaling a notable slowdown in underlying customer activity. The weakness was particularly evident in the Americas, where comparable sales fell about 12%.

Regionally, North America revenue declined about 8%, underscoring the pressure in the company’s largest market. These declines contrasted with the strong margin performance, suggesting that cost and one-time factors rather than robust top-line growth supported the quarter’s profitability.

Reflecting the softer sales trends, Lululemon issued cautious guidance for the coming periods. For the third quarter, the company projected revenue of $2.29 billion to $2.32 billion, implying a roughly 10%–11% year-over-year decline. This outlook points to continued pressure on the top line rather than a quick rebound in demand.

For the full fiscal year, Lululemon reduced its revenue guidance to a range of $10.35 billion–$10.5 billion and set full-year diluted EPS guidance at $9.48–$9.73. The updated outlook incorporates the second-quarter results, including the one-time tariff benefit, while signaling more modest expectations for growth and earnings power over the remainder of the year.

Investors reacted negatively to the combination of a revenue miss, weakening comparable sales, and reduced guidance. Shares fell about 15% in after-hours trading following the release of the results. The market response highlighted concerns that underlying demand softness and a lower growth trajectory could outweigh the short-term benefits from margin expansion and one-time items.