Lululemon Athletica Inc. (NASDAQ: LULU) experienced a dramatic after-hours selloff on September 3, 2026, with shares tumbling 18.5% to $99.24. The plunge came after the athletic apparel retailer reported a 9% drop in comparable sales and slashed its full-year revenue guidance for the second time in three months.
The stock, which closed the regular session at $121.77, lost $22.53 in after-hours trading. The sharp decline erased approximately $2.44 billion in market value, based on 108.44 million shares outstanding. Trading volume was robust, with 16.67 million shares changing hands on Nasdaq, suggesting the move was driven by genuine selling pressure rather than thin liquidity.
Q2 Results Miss on Top Line, Beat on EPS
For the fiscal second quarter ended August 2, 2026, Lululemon reported revenue of $2.416 billion, a 4% decline year-over-year and below the $2.46 billion consensus estimate. The company's Americas segment was the primary drag, with revenue down 8%, including an 8% drop in the U.S. and an 11% decline in Canada. International markets provided some offset, with China Mainland growing 4% in reported dollars (though down 2% in constant currency) and rest-of-world sales up 5%.
Despite the revenue miss, adjusted earnings per share of $2.06 easily beat the $1.80 consensus. However, the reported GAAP EPS of $2.92 was inflated by a one-time $134.5 million tariff refund, which added $0.86 to quarterly EPS and contributed 560 basis points to gross and operating margins. Excluding this benefit, gross margin would have been approximately 54.9% rather than the reported 60.5%, and operating margin would have been around 13.2% versus 20.7% a year ago.
Guidance Cut Signals Deeper Demand Problems
Management's outlook for the remainder of the year was far more sobering. The company now expects fiscal 2026 revenue in the range of $10.35 billion to $10.50 billion, a $650 million reduction from the midpoint of its June guidance. The EPS forecast was also trimmed to a midpoint of $9.605, down 13.1% from the previous $11.05, even including the $0.86 tariff benefit already booked.
For the third quarter, Lululemon projects revenue of $2.29 billion to $2.32 billion, down 10% to 11% year-over-year, with EPS of $0.93 to $0.98 compared to $2.59 a year earlier. Operating margin is expected to be approximately 6.5% in the upcoming quarter, versus 17% in the same period last year.
Product and Channel Weakness
Interim co-CEO and CFO Meghan Frank acknowledged on the earnings call that leggings sales fell about 20% in the quarter, a significant blow to the company's core product category. While looser 'away-from-body' bottoms gained traction, they could not offset the decline. Women's revenue fell 4%, men's dropped 1%, and accessories and other revenue decreased 13%.
Weakness was broad-based across channels. Store sales fell 6%, and digital revenue declined 6% to approximately $900 million, representing 39% of quarterly revenue. The company ended the quarter with 825 stores and 11% more square footage than a year earlier, but management trimmed its net store opening plan to about 35 from 40, reflecting the challenging environment.
Capital Allocation Under Scrutiny
Lululemon's balance sheet remains solid, with $1.39 billion in cash and $593.7 million available under its revolving credit facility. However, the company's decision to repurchase 2.7 million shares at an average price of roughly $120 during the quarter now looks poorly timed, given the current after-hours price is about 17% below that level.
Management's Diagnosis and Path Forward
Frank attributed the sales pressure primarily to declining traffic, while also acknowledging negative conversion rates. The company plans to increase marketing spend, reduce SKU count in stores, and accelerate reorders of popular styles to reignite demand. Incoming CEO Heidi O'Neill, who starts the week of September 7, will conduct a strategic review of these initiatives.
Market Reaction and Outlook
Investors have been skeptical of Lululemon's valuation for some time, with analyst ratings split between 19 holds and three sells in the past three months. At the after-hours price of $99.24, the stock trades at roughly 10.3 times the midpoint of reported EPS guidance, or about 11.3 times after adjusting for the one-time tariff refund.
The company has not included an additional $105 million of potential tariff refunds in its guidance, which could provide upside if realized. However, the risk of persistent traffic weakness, higher markdowns, and fixed-cost deleverage remains. The third quarter, now underway, will be a critical test of whether Lululemon can stabilize its core business.
