Lululemon Guides Far Below Estimates and the Stock Drops 18%
Lululemon athletica guided third-quarter diluted earnings to a range of $0.93 to $0.98 in results released after the close on Sept 3, against a Yahoo Finance consensus of $2.48 from 15 analysts, roughly 61% below what analysts had modelled. The stock fell about 18% in after-hours trading, to around $99.65 from a close of $121.77.
The printed quarter was not the problem. Lululemon is headquartered in Vancouver, British Columbia, trades on the NASDAQ and reports in US dollars, so every figure below is in US dollars. Three things need separating, because the headline numbers blur them: a quarter that cleared earnings consensus, an outlook that collapsed, and a tariff refund that will not repeat and that flatters the reported profit.
The verdict in one table
| Metric | Actual (company release) | Consensus (Yahoo Finance) | Verdict |
|---|---|---|---|
| Q2 diluted EPS | $2.92 | $1.79 (16 analysts) | Above, but see the tariff refund |
| Q2 EPS excluding the refund | about $2.06 | $1.79 (16 analysts) | Above by about 15% |
| Q2 revenue | $2.416 billion | $2.459 billion (23 analysts) | Below by about 1.8% |
| Q3 EPS guidance | $0.93 to $0.98 | $2.48 (15 analysts) | About 61% below |
| Q3 revenue guidance | $2.290 to $2.320 billion | $2.535 billion (23 analysts) | About 9% below |
| Full-year EPS guidance | $9.48 to $9.73 | $10.98 (21 analysts) | About 12% to 14% below |
| Full-year revenue guidance | $10.350 to $10.500 billion | $11.031 billion (31 analysts) | About 5% to 6% below |
Actuals and guidance from lululemon’s second-quarter release. Consensus and analyst counts from Yahoo Finance, data as of 7:30 p.m. ET, Sept 3, 2026.
The tariff refund added $0.86, and it hides a margin decline
This is the paragraph worth slowing down for. During the quarter, lululemon received International Emergency Economic Powers Act tariff refunds of $134.5 million plus $4.1 million of associated interest, recognised as a reduction of cost of goods sold and as other income respectively. The company states the combined effect added $0.86 to diluted earnings per share net of tax, and 560 basis points to both gross margin and operating margin.
Run the arithmetic and the picture changes. Reported gross margin was 60.5%, up 200 basis points from 58.5% a year earlier. Strip out the 560 basis points of refund benefit and the underlying gross margin fell by roughly 360 basis points. Reported operating margin was 18.8%, down 190 basis points year over year. Strip out the same 560 basis points and the underlying operating margin declined by roughly 750 basis points.
The same adjustment applies to earnings. Reported diluted EPS was $2.92 against $3.10 a year ago. Take out the $0.86 and the underlying figure is about $2.06, which still clears the $1.79 Yahoo Finance consensus from 16 analysts by roughly 15%, but it is a different number from the one at the top of the release.
The full-year outlook includes the $0.86 already recognised and, in the company’s words, “does not reflect any further potential tariff refunds.” The benefit is in the guidance once, and only once.
The quarter: revenue missed, comparable sales fell 9%
Net revenue was $2.416 billion, down 4% from $2.525 billion a year earlier and down 5% in constant dollars. That is about 1.8% below the $2.459 billion Yahoo Finance consensus from 23 analysts.
The regional split shows where the pressure sits. Americas net revenue fell 8% while International net revenue rose 4%, up 2% in constant dollars. Comparable sales fell 9%, or 10% in constant dollars, with Americas comparable sales down 12% and International comparable sales down 3%, or 6% in constant dollars.
Costs moved the wrong way. Selling, general and administrative expense was $1.006 billion, or 41.7% of revenue against 37.7% a year ago, which is 400 basis points of deleverage. Gross profit of $1.462 billion was down 1%, income from operations of $453.7 million was down 13%, and the effective tax rate was 29.6% against 30.5%.
Also in the release: 2.7 million shares repurchased for $330.0 million, nine net new company-operated stores taking the count to 825, $1.4 billion of cash and equivalents with $593.7 million available on the revolving credit facility, and inventory of $1.7 billion, down 1% in dollars and 7% in units.
The guidance, in the company’s own words
For the third quarter, lululemon guided to net revenue of $2.290 billion to $2.320 billion, “representing a decline of 10% to 11%”, with diluted EPS of $0.93 to $0.98 and a tax rate of about 30%. Consensus was $2.535 billion of revenue from 23 analysts and $2.48 of EPS from 15.
For the full year, the guide is net revenue of $10.350 billion to $10.500 billion, “representing a decline of 5% to 7%”, with diluted EPS of $9.48 to $9.73 and a tax rate of about 30%. It excludes any future share repurchases. Consensus was $11.031 billion of revenue from 31 analysts and $10.98 of EPS from 21.
The distance between a 9% revenue shortfall and a 61% earnings shortfall for the third quarter is operating leverage working in reverse: the cost base that produced 400 basis points of deleverage this quarter is set against a smaller revenue line. For context on how operating leverage behaves at large-cap scale elsewhere, start with Canadian blue chip stocks.
A guidance reset one week before a new CEO arrives
Lululemon is currently run by two interim Co-CEOs. Meghan Frank is Interim Co-CEO and Chief Financial Officer, and said in the release: “While we continue to navigate some challenging dynamics, we are taking a prudent approach with our revised full-year outlook.” Andre Maestrini is Interim Co-CEO, President and Chief Commercial Officer, and said: “We look forward to welcoming our incoming CEO, Heidi O’Neill, next week as we begin an exciting new chapter for the company.”
A guidance reset of this size therefore lands one week before a new chief executive starts. Readers can weigh that sequence themselves.
The stock: an after-hours print below the 52-week low
Lululemon closed at $121.77 on Sept 3, up 1.4% on the day, on volume of 16.2 million shares against a recent norm nearer 4 million. That close puts market capitalisation at about $13.8 billion. After the release the stock traded at about $99.65 in after-hours trading, roughly 18% below the close, as of 7:30 p.m. ET on Sept 3.
Two caveats belong with that after-hours number. After-hours markets are thin, and prices printed there do not always hold at the next open. And the after-hours level sits below the 52-week low of $104.44, in a range running up to $225.98.
Analyst price targets on Yahoo Finance stood at a mean of $127.35 and a median of $121, with a high of $280 and a low of $88. All were set before this release and most will be revised.
What a holder should watch from here
The earnings history matters here. Lululemon reported $1.69 against a $1.68 estimate in June 2026, $5.01 against $4.78 in March 2026, $2.59 against $2.21 in December 2025 and $3.10 against $2.85 in September 2025, per Yahoo Finance. It has cleared EPS consensus in each of the last several quarters, including this one. The question is not whether it can print a quarter above the bar. It is the direction of the business underneath.
Three things carry that answer. Whether Americas comparable sales, down 12% this quarter, stabilise, since International growth of 4% is not large enough to offset them. Whether underlying gross margin, down roughly 360 basis points once the refund is removed, finds a floor, and whether the cost base can be brought into line with revenue guided to decline 5% to 7%. And what Heidi O’Neill says about the plan once she arrives, given the outlook she inherits was set the week before.
None of that argues for a particular action. It argues for judging the third quarter against the guidance issued today rather than the consensus that stood yesterday. For readers weighing this against other large Canadian names, our best Canadian stocks list sets out how we frame that comparison.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. Company figures are from lululemon’s Sept 3, 2026 second-quarter release (US dollars); consensus figures are Yahoo Finance consensus; share prices from Yahoo Finance.
