lululemon athletica NASDAQ: LULU reported second-quarter revenue and earnings that fell below its expectations, citing weaker traffic, inconsistent product launches and pressure on brand sentiment in North America and China Mainland. The company lowered its full-year outlook and said it is increasing marketing investment while tightening expenses and inventory management.
Total second-quarter net revenue declined 4% year over year, or 5% on a constant-currency basis, to $2.4 billion. Comparable sales fell 10%. Net income was $329 million, or $2.92 per diluted share, compared with $3.10 per share in the prior-year quarter. Tariff refunds and associated interest added $0.86 per share to quarterly earnings, the company said.
Regional weakness drives revenue decline
North America revenue declined 8% in the second quarter, with comparable sales down 12%. U.S. revenue fell 8%, while Canada revenue declined 11% on a reported basis, or 9% in constant currency.
China Mainland revenue rose 4% on a reported basis but declined 2% in constant currency, while comparable sales fell 8%. Interim Co-CEO and CFO Meghan Frank said the company faced negative media and social-channel commentary beginning late in the first quarter and early in the second quarter. That was compounded by commentary following the company’s first-quarter call regarding an event held at the Great Wall of China.
Interim Co-CEO, President and Chief Commercial Officer André Maestrini said those factors hurt traffic in stores and digital channels. E-commerce was also affected by Tmall’s decision not to repeat its 618 Shopping Festival in the same manner as the prior year, as well as lululemon’s decision not to participate in promotions following the event.
Revenue in the company’s rest-of-world segment, consisting of EMEA and APAC, increased 5%, or 6% in constant currency, while comparable sales declined 3%. Maestrini said South Korea remained one of the company’s strongest markets, while Australia has become increasingly promotional. Lululemon has not joined those promotional events, which he said has slowed guest purchase behavior.
Product trends remain mixed
Frank said women’s leggings sales declined approximately 20% during the quarter, a greater-than-expected slowdown in a core category. While the company remains committed to leggings and described itself as the category’s market leader, it is seeing consumer demand shift toward away-from-body silhouettes.
The company cited favorable performance from newer styles including Groove Wide-Leg, Align Foldover Jogger, Breezily and an updated Dance Studio Pant. Other products performing well included the Define franchise, Scuba and Steady State tops in the company’s SuperLoft fabric, men’s Metal Vent Tech tees and golf tops. The golf assortment also supported sales of ABC bottoms, management said.
Men’s revenue declined about 1% during the quarter, women’s revenue declined 4%, and accessories and other revenue fell 13%. While backpacks remained strong, the company reported softness in bags and said it is editing its accessories assortment to better align with its future brand vision.
Frank said lululemon is increasing its use of chase capabilities to replenish stronger-performing products, with approximately 20% more volume being chased this year than last year. The company is also working to reduce SKUs, manage future inventory flows and shorten product-development lead times.
Marketing and store actions target traffic and conversion
Management identified traffic as the largest driver of pressure across North America and China, while noting that conversion was also negative year over year but had not worsened. The company plans increased marketing investment in the second half, particularly in mid-funnel creator and social content, community events and athlete-focused storytelling.
Lululemon pointed to engagement from its summer yoga series across 70 U.S. and Canadian cities and the return of its SeaWheeze Half Marathon and Festival in Vancouver. The SeaWheeze event drew nearly 10,000 runners from 24 countries, while a related virtual Strava challenge attracted more than 85,000 participants across 120 countries. The company said it will bring the event back next summer.
In stores, Maestrini said lululemon has reduced SKU density by 15% and is rolling those changes across the North American fleet. The company is also testing more curated assortments, new fixture packages, additional imagery and activity mannequins in a smaller group of locations. Digital efforts include redesigned home and category-detail pages, with a product-detail-page update planned in the coming weeks.
Margins and outlook revised lower
Second-quarter gross margin expanded 200 basis points to 60.5%, helped by 560 basis points from IEEPA tariff refunds. Excluding the refund, product margin was affected by tariff costs and higher markdowns. Operating income totaled $454 million, or 18.8% of revenue, compared with 20.7% a year earlier.
SG&A expenses rose to 41.7% of revenue from 37.7%, reflecting fixed-cost deleverage, investments in guest experience and marketing, and proxy-contest fees. The company said it is taking a more aggressive approach to cost management, including supply-chain efficiencies, non-merchandise procurement, automation, travel, professional fees, store labor hours and moderation of headcount growth.
Lululemon ended the quarter with $1.4 billion in cash and cash equivalents. Inventory was $1.7 billion, down 1% in dollars and down approximately 7% in units. During the quarter, it repurchased about 2.7 million shares at an average price of $120.
- Third-quarter revenue is expected to decline 10% to 11% to a range of $2.29 billion to $2.32 billion.
- Third-quarter diluted EPS is projected at $0.93 to $0.98, versus $2.59 a year earlier.
- Full-year 2026 revenue is now expected to be $10.35 billion to $10.5 billion, down 5% to 7% from 2025.
- Full-year diluted EPS is forecast at $9.48 to $9.73, compared with $13.26 in 2025.
The company now expects to open approximately 35 net new company-operated stores this year, down from its previous target of about 40. It plans roughly 10 openings in North America, including seven in Mexico, and about 25 in international markets. Frank said incoming CEO Heidi O’Neill, who joins next week, will review the business, strategy and current action plan.
About lululemon athletica (NASDAQ:LULU)
lululemon athletica inc. is a design-focused athletic apparel company known for performance-oriented apparel, footwear and accessories. The company's product portfolio centers on technical apparel for yoga, running, training and everyday active lifestyle use and includes tops, bottoms, outerwear, underwear, bags and a growing footwear assortment. lululemon emphasizes fabric science and product innovation, marketing garments that blend performance features with lifestyle styling.
Products are developed in-house and produced through a network of third-party manufacturers.
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