Lululemon's Sales Decline Is Spreading Faster Than Its Fixes

Lululemon's fiscal second-quarter 2026 revenue fell 4%, ending the growth pattern investors had expected from the athletic-apparel company. North American sales dropped 8%, and management said leggings sales fell about 20%, placing pressure directly on a core product category.

The near-term outlook was worse. Management guided to a 10% to 11% sales decline in the third quarter and an operating margin near 6.5%, compared with roughly 17% a year earlier. More clearance activity on seasonal inventory can reduce both revenue quality and gross margin.

Reported earnings also need adjustment. The second quarter included $134.5 million of tariff refunds and associated interest. Lululemon's SEC filing said the benefit added $0.86 to diluted EPS of $2.92 after tax. Without that one-time support, the underlying profit comparison was materially weaker.

There are offsets. Men's sales declined only about 1%, China Mainland still grew 4%, and the company holds substantial cash. New leadership and product changes could improve demand, but management's guidance did not assume an immediate benefit from those initiatives.

A low earnings multiple is not sufficient evidence of value when the earnings base is falling. The next report should be judged on traffic, full-price sell-through, inventory and the gap between North America and China. A smaller-than-guided sales decline would be an early sign of stabilization; continued double-digit weakness would show that the turnaround is still behind the deterioration.