Lululemon cuts FY2026 guidance 5-7% as China demand weakens

Lululemon reported Q2 revenue of $2.42 billion, down 5 percent and missing consensus, as management cut FY2026 guidance for the third time.

"Negative comments on social media regarding promotional campaigns in China hurt brand sentiment, while e-commerce was weak after the company did not participate in follow-up promotions for the 618 shopping festival," Nomura analysts wrote in a research note.

Operating income fell 13 percent year over year to $454 million, with margin contracting 1.9 percentage points to 18.8 percent. Management now expects FY2026 revenue of $10.35 billion to $10.5 billion, a 5 percent to 7 percent decline, versus the prior forecast of a 0 percent to 1 percent decline and the $10.98 billion market consensus.

The cut marks the third guidance reduction since March, reflecting persistent competitive pressure in North America and China sportswear markets. Nomura named ANTA Sports (02020.HK) its preferred China sportswear pick, citing long-term benefits from outdoor and emerging sports growth and a multi-brand strategy that helps address competition.

Shares fell 17.9 percent after hours to $99.95, an eight-year low, following the September 3 release. Reported diluted EPS of $2.92 beat consensus by roughly 63 percent, but $0.86 per share came from a one-time IEEPA tariff refund, leaving underlying EPS near $2.06, down from $3.10 a year earlier. The refund also inflated margins: reported gross margin rose 200 basis points to 60.5 percent, but the refund alone added 560 basis points, implying underlying gross margin contracted roughly 360 basis points.

Americas comparable sales fell 12 percent, while international revenue rose 4 percent and China mainland revenue gained 4 percent with comparable sales down 2 percent. Management guided Q3 revenue of $2.29 billion to $2.32 billion, down 10 percent to 11 percent, with EPS of $0.93 to $0.98 against a $2.41 consensus.

Incoming CEO Heidi O'Neill, a Nike veteran, starts September 8 and inherits the lowered outlook. Management said it will focus on improving full-price sales in China and will participate in Singles' Day, while continuing to view mainland China as a market expansion opportunity.

The guidance cut puts the stock at roughly 10 times forward earnings, but the multiple sits on a falling earnings base. Investors will watch whether Americas comparable sales narrow their decline in Q3 and whether O'Neill's product and marketing reset can restore brand momentum in China ahead of Singles' Day.

This article is for informational purposes only and does not constitute investment advice.