lululemon athletica Q2 FY27 earnings call LULU

Lululemon's Q2 revenue of $2.4 billion fell below expectations, primarily due to underperformance in China Mainland and North America. This led to a significant downward revision of the full-year 2026 revenue guidance to $10.35 billion to $10.5 billion, representing a 5% to 7% decline. The company acknowledged inconsistent product launch responses and pressure on brand sentiment as key drivers for the moderating sales trend, necessitating a more prudent outlook for the remainder of the year.

The company is focused on returning to full-price sales growth and strengthening brand health. While seeing 'green shoots' in new 'away-from-body' bottoms and specific men's categories, overall product launch response has been inconsistent. Leggings sales declined approximately 20% in Q2, a greater-than-expected slowdown in a core category. Management is aggressively chasing strong performers, reordering into successful styles like Groove Wide Leg and Align Foldover Jogger, and strategically editing the accessories assortment.

Lululemon is increasing marketing investments in the back half of the year to drive brand heat, guest acquisition, and traffic. Recent successful activations include the Summer Series yoga events in 70 cities and the SeaWheeze Half Marathon in Vancouver, which saw 85,000 participants globally via Strava. These efforts are aimed at building brand relevance and engagement through social channels, creator content, and community experiences, with confidence that these investments will reignite sales trends over time^⏳.

North America revenue declined 8% in Q2, with the U.S. down 8% and Canada down 11% (9% constant currency). To enhance the guest experience, stores are implementing new fixture packages, reducing SKU density by 15%, and localizing assortments. Digital channels are also being refined with redesigned homepages and category detail pages to improve storytelling and conversion, aiming to address traffic and conversion pressures seen across both channels.

China Mainland revenue increased only 4% (decreased 2% constant currency) in Q2, significantly below expectations. This was primarily attributed to negative media and social channel commentary, compounded by issues related to a Q1 event and a softer Tmall 618 event. The company is focused on restoring brand sentiment through continuous activations, new store openings with associated events, a Super Brand Day on Tmall, and leveraging its well-being leadership for World Mental Health Day.

Given current top-line trends, Lululemon is taking a more aggressive stance on expense management, while protecting investments in product and brand. Ongoing initiatives include supply chain efficiencies, non-merchandise procurement, and AI-powered systems. Discretionary spending is being scrutinized across travel, professional fees, store labor hours, and headcount growth. The company plans to open approximately 35 net new stores this year, down from 40, and significantly reduce pop-up stores by the end of 2026.

Inventory at the end of Q2 decreased 1% in dollar terms and 7% in unit terms, reflecting improved management. Gross profit for Q2 was $1.46 billion, or 60.5% of net revenue, benefiting by 60 basis points from IEEPA tariff refunds. Excluding the refund, gross margin was impacted by 160 basis points from tariffs and 70 basis points from markdowns. The full-year guidance assumes tariff rates of 10-12.5% through September and 20% for the remainder of the year, with no additional IEEPA refunds factored in.