After market close on September 3 (US Eastern Time), Canadian athletic lifestyle brand lululemon (NASDAQ: LULU) released its financial results for the second quarter of fiscal 2026 ended August 2, 2026: global net revenue decreased 4% year-over-year to $2.416 billion (down 5% on a constant-dollar basis), below analyst expectations, of which international business net revenue increased 4% year-over-year (down 2% on a constant-dollar basis). Foreign exchange fluctuations had a positive impact of approximately 1 percentage point on reported net revenue for the quarter.
lululemon Interim Co-CEO and Chief Financial Officer Meghan Frank noted on the conference call that women's leggings sales declined approximately 20% this quarter, below company expectations; several new away-from-body styles received a good response, but were not enough to fully offset the decline in leggings. She stated that the company remains committed to this category and maintains market leadership in it, but customers are shifting toward looser silhouettes.
Comparable sales decreased 9% year-over-year this quarter (down 10% on a constant-dollar basis). Bloomberg noted this is the first decline since the company resumed reporting the metric post-pandemic. (Note: Comparable sales include net revenue from company-operated stores that have been open for at least 12 full fiscal months (or 12 full fiscal months after significant expansion) and e-commerce, excluding stores temporarily relocated or temporarily closed due to renovation.)
Within international business, mainland China accounted for 17% of total group net revenue, compared with 16% in the prior-year period. This quarter, mainland China net revenue increased 4% year-over-year to $407.1 million (down 2% on a constant-dollar basis); comparable sales decreased 2% year-over-year (down 8% on a constant-dollar basis), a sharp slowdown from the previous quarter (in the prior quarter, mainland China net revenue grew 30% year-over-year, or +23% on a constant-dollar basis; comparable sales grew 20% year-over-year, or +13% on a constant-dollar basis).
Regarding the China market, lululemon Interim Co-CEO, President and Chief Commercial Officer André Maestrini said on the earnings call that the brand faces multiple issues in China affecting brand sentiment and product reputation, which has hurt foot traffic and overall sales momentum. This situation began with a peak in negative brand commentary in media and social channels from late Q1 to early Q2, with weakness in both stores and online channels; e-commerce was also affected by Tmall not continuing the "618" event in the same way as last year, and the company did not participate in promotions after the event.
Following the earnings release, as of the close on September 4, lululemon's stock plummeted 17.38% from the previous trading day to $100.61 per share, with a latest market capitalization of $11.139 billion. Reuters noted the stock hit an eight-year low, approaching levels last seen in May 2018.
On the profitability front, gross profit decreased 1% year-over-year to $1.462 billion, with gross margin up 200 basis points to 60.5% (including a 560 basis point boost from a one-time $134.5 million US tariff refund); operating profit decreased 13% year-over-year to $454 million, with operating margin down 190 basis points to 18.8%; net income decreased 11% year-over-year to $329 million, with diluted earnings per share of $2.92 (compared with $3.10 in the prior-year period), including $0.86 from the tariff refund and related interest (after tax).
Regarding stores, the company opened a net 9 new company-operated stores this quarter (including 7 in the Americas, a net 1 in mainland China, and 1 in other international markets), bringing the total store count to 825 at period end (compared with 784 in the prior-year period), with total square footage up 11% year-over-year. In addition, lululemon has lowered its fiscal 2026 net new store opening plan to approximately 35 from the previous quarter's guidance of approximately 40, and plans to reduce the number of pop-up stores from 65 at the end of fiscal 2025 to approximately 40 by the end of fiscal 2026.
Meghan Frank said: "In the face of a still challenging operating environment, we have prudently adjusted our full-year outlook. The team will continue to focus on driving growth, further strengthening our product assortment, increasing marketing investment, and maintaining disciplined expense management. Looking ahead, we remain confident in the strength of the lululemon brand and the deep connections we have built with our guests and ambassadors, and we are confident in the long-term growth opportunities."
André Maestrini said: "We remain confident in taking the right actions to continue improving business performance and driving long-term sustainable growth. I sincerely thank our global teams for their dedication and continued commitment to lululemon. We also look forward to welcoming incoming Chief Executive Officer Heidi O'Neill next week as we begin a new chapter in the company's development together."
lululemon's new Chief Executive Officer Heidi O'Neill (pictured below) will assume her role on September 8. She was previously a Nike executive and was appointed in April of this year. Meghan Frank said on the conference call that the company expects her to gain a deep understanding of the business, evaluate existing strategies and action plans, and bring a fresh perspective to lululemon's next phase; until then, the team's focus remains on execution.
According to Reuters, several institutions lowered their price targets for lululemon after the earnings release. Morningstar analyst David Swartz expects the company's store opening pace to slow and anticipates cost cuts, management changes, and a possible operational "restructuring"; BNP Paribas Exane senior analyst Laurent Vasilescu believes that as consumers shift away from the leggings category, the related decline could persist for multiple quarters or even years.
As of August 2, key financial data for lululemon's second quarter of fiscal 2026 are as follows:
— By region:
- Americas: Net revenue decreased 8% year-over-year (down 8% on a constant-dollar basis), and comparable sales decreased 12% year-over-year (down 12% on a constant-dollar basis). Among them, US net revenue decreased 8% year-over-year, and Canada decreased 11% (down 9% on a constant-dollar basis).
- Mainland China: Net revenue increased 4% year-over-year (down 2% on a constant-dollar basis), and comparable sales decreased 2% year-over-year (down 8% on a constant-dollar basis).
- Rest of World: Net revenue increased 5% year-over-year (up 6% on a constant-dollar basis), and comparable sales decreased 4% year-over-year (down 3% on a constant-dollar basis).
— By category:
- Women's: Net revenue decreased 4% year-over-year this quarter.
- Men's: Net revenue decreased 1% year-over-year this quarter.
- Accessories and other: Net revenue decreased 13% year-over-year this quarter.
— By channel:
- Company-operated stores: Net revenue decreased 6% year-over-year this quarter.
- E-commerce: Net revenue decreased 6% year-over-year this quarter.
Outlook:
- Third quarter of fiscal 2026: Net revenue expected between $2.29 billion and $2.32 billion, down 10% to 11% year-over-year; diluted earnings per share expected between $0.93 and $0.98. By region, North America is expected to decline in the mid-teens, mainland China and other international markets to grow 3% to 5%.
- Full fiscal year 2026: Net revenue expected between $10.35 billion and $10.5 billion, down 5% to 7% year-over-year; diluted earnings per share expected between $9.48 and $9.73 (compared with $13.26 in fiscal 2025). By region, North America is expected to decline in the low teens, mainland China to grow high-single digits, and other international markets to grow mid-single digits. The company plans to open approximately 35 net new stores and complete approximately 35 store optimizations for the full year, with total square footage increasing approximately 10%.
It is worth noting that this is lululemon's second downward revision of its full-year guidance this year. The initial guidance for fiscal 2026 in March was net revenue of $11.35 billion to $11.5 billion, up 2% to 4% year-over-year, with mainland China full-year net revenue expected to grow approximately 20%; in June, the full-year net revenue guidance was lowered to $11 billion to $11.15 billion.
丨Source: lululemon financial report, conference call, Bloomberg, Reuters
丨Image source: lululemon official website
丨Editor: LuxeCO
