Lululemon shares are down as much as 20% in Friday's premarket session, extending a slide that started Thursday evening when the company reported second-quarter fiscal 2026 results and cut its full-year outlook for the second time this year. The headline number looked like a win: adjusted earnings per share of $2.92 blew past a consensus near $1.82. The stock is falling anyway, and the reason is worth understanding before the next earnings season repeats the same trick.
Why did Lululemon stock fall 20% after beating EPS estimates?
Lululemon's EPS beat was inflated by a one-time $0.86 per share tariff refund and related interest. Strip that out and adjusted EPS was closer to $2.06, a smaller beat. Revenue fell 4% to $2.4 billion, missing estimates, on a 9% drop in comparable sales. Traders priced the underlying trend rather than the headline number, and the underlying trend was weaker than the EPS line suggested.
Per the company's own release, net revenue decreased 4% to $2.4 billion, or 5% on a constant dollar basis, while comparable sales decreased 9%, or 10% on a constant dollar basis. Independent reporting on the print confirmed adjusted EPS of $2.92 against a roughly $1.82 consensus, with $0.86 of that tied to the tariff refund, a beat of more than a dollar a share driven mostly by a line item that will not repeat next quarter.
What were Lululemon's actual Q2 fiscal 2026 results?
Q2 net revenue fell 4% to $2.4 billion, missing the roughly $2.46 billion analysts expected. Comparable sales dropped 9% globally, with Americas comparable sales down 12% and international down 3%. Diluted EPS came in at $2.92, versus $3.10 a year earlier, and operating margin fell 190 basis points to 18.8%.
The company's release put the Americas comparable sales decline at 12% and international comparable sales decline at 3%, or 6% on a constant dollar basis, with operating margin down 190 basis points to 18.8% confirming the topline miss did not stay contained to revenue alone.
How much of Lululemon's EPS beat came from a tariff refund?
About $0.86 per share, net of tax, came from tariff refunds and associated interest recognized in the quarter. That pushed reported gross margin up 200 basis points to 60.5%, but tariff refunds alone contributed 560 basis points to that figure. Excluding the refund, the underlying gross margin trend ran roughly 360 basis points worse than the headline number suggests.
That gap between the reported 200 basis point improvement and the 560 basis point tariff contribution is confirmed directly in Lululemon's own results, which state gross margin increased 200 basis points to 60.5% with tariff refunds contributing 560 basis points to that expansion, arithmetic that only works if the non-refund portion of gross margin actually shrank.
What is Lululemon's new full-year 2026 guidance?
Lululemon now expects fiscal 2026 revenue of $10.35 billion to $10.5 billion, a 5% to 7% decline, down from prior guidance calling for flat to a 1% decline. Full-year EPS guidance dropped to $9.48-$9.73 from $10.95-$11.15. Third-quarter guidance calls for revenue of $2.29-$2.32 billion and EPS of $0.93-$0.98, both well under prior Street estimates.
Third-quarter revenue guidance of $2.29-$2.32 billion, a 10-11% decline, compares to a consensus near $2.53 billion, and the Q3 EPS guide of $0.93-$0.98 sits well under a $2.41 consensus, the clearest sign management expects the current quarter's softness to continue rather than reverse.
What's changing in Lululemon's leadership?
Incoming CEO Heidi O'Neill is set to take over next week, inheriting a business with slowing North American demand and margin pressure from tariffs. Outgoing interim CEO Meghan Frank told analysts that negative commentary on social media contributed to the quarter's softness, alongside a steeper than expected slowdown in core categories including leggings.
Frank's comment about negative social media commentary affecting performance, alongside weakness concentrated in leggings and other core categories, is notable mainly for what it does not blame: pricing, competition from newer athleisure brands, or the tariff exposure that just cost the company hundreds of basis points of underlying margin. This is also the second full-year guidance cut of 2026, which is the detail that will follow O'Neill into her first earnings call as CEO.
What else is moving in premarket trading Friday?
Premarket dispersion is unusually wide for a morning still waiting on the August jobs report, due at 8:30 a.m. ET. Snowflake is up more than 16% and Robinhood over 16% on outsized volume, while Ciena is down more than 10% and Tyson Foods over 7%, all on three to four times average premarket volume ahead of the print.
That kind of single-name dispersion, running well ahead of a scheduled data release, is typically a sign that Thursday's after-hours earnings reports are still working their way through prices rather than a read on the jobs number itself. Lululemon's own premarket move deepened from an initial 15% after-hours drop Thursday to as much as 20% by Friday's premarket session, erasing more than $2.5 billion in market value and pushing the stock's year-to-date decline past the 40% mark.
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