Lululemon Athletica is facing a potential billions in market-value hit after cutting its annual forecast for the second time this year, but the selloff is also exposing a less obvious weakness in its quarterly numbers. Nearly 30% of the company’s reported Q2 EPS came from tariff refunds and associated interest rather than its underlying operations.
Shares were down roughly 20% in premarket trading Friday, according to Reuters, after closing Thursday at $121.52. Reuters estimated the decline could wipe about $2.8 billion from Lululemon’s market capitalization.
Lululemon reported revenue of $2.42 billion, down 4% year over year. Comparable sales fell 9%, while Americas revenue dropped 8% and comparable sales in the region declined 12%. International revenue rose 4%.
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Diluted EPS came in at $2.92, down from $3.10 a year earlier. However, this included $0.86 per share from $134.5 million of International Emergency Economic Powers Act tariff refunds and $4.1 million of related interest. Excluding that disclosed contribution, EPS would have been about $2.06.
The refunds also added 560 basis points to Lululemon’s reported 60.5% gross margin. Operating income still fell 13% to $453.7 million.
The deterioration has reached one of Lululemon’s defining product categories. Management said during Thursday’s earnings call that legging sales declined approximately 20% in the quarter, with newer looser-fitting bottoms not yet offsetting the decline.
More significantly, Lululemon has now taken almost $1.0 billion off the top end of its original fiscal 2026 revenue forecast. In March, it projected $11.35 billion to $11.50 billion, cut it in June to $11.00 billion to $11.15 billion, and again recently cut it to $10.35 billion to $10.50 billion.
Full-year EPS guidance has similarly fallen from $12.10 to $12.30 in March to $9.48 to $9.73, with the newest range already including the $0.86 tariff benefit.
Incoming CEO Heidi O’Neill, the former Nike executive scheduled to take over September 8, will therefore inherit a company whose biggest market and signature product category are shrinking simultaneously.
