LULU Stock Tanks 19% as Earnings and FY2026 Guidance Disappoint Investors

Lululemon shares tumbled in after-hours and premarket trading after a second-quarter report that beat on earnings but delivered a weaker outlook for the rest of the fiscal year. LULU stock fell by 19%, extending a bad spell that has seen multiple guidance cuts in a row.

LULU earnings beat masks weak sales trends

The headline earnings number looked strong at first glance. Adjusted earnings per share came in at $2.92, well above the $1.82 to $1.79 analysts had expected. But that figure included $0.86 per share from tariff refunds and related interest. If this interest was removed, adjusted earnings would have been $2.06 a share, a less impressive result.

Lululemon’s revenue did not do so well. Sales fell 4% year over year to $2.4 billion, missing the $2.46 billion analysts had projected. Comparable sales also dropped 9% overall, or 10% on a constant-currency basis. The Americas region was hit the hardest, with comparable sales down 12%, while international markets fell 3%.

Interim Co-CEO and Chief Financial Officer Meghan Frank told analysts on the earnings call that the company faced "negative commentary" on social media that affected its performance during the quarter.

 "The overall response to our product launches remains inconsistent, and we've continued to see pressure on the brand in both of our largest markets."

Notably, gross margin improved, rising 200 basis points to 60.5%. However, more than half of that gain came from the tariff refund and not the business. Operating margin moved the other direction, falling 190 basis points to 18.8%.

Lululemon cuts guidance again for the third straight quarter

The management updated its outlook for the next quarter, reducing its targets for the third time. The company projected revenue to around $2.29 billion and $2.32 billion for Q3. This is a decline of about 10% to 11% from a year ago and short of the $2.53 billion analysts had predicted. 

Third-quarter earnings sat at $0.93 to $0.98 per share, below the $2.41 consensus estimate. Lululemon’s fiscal 2026 revenue guidance was cut to around $10.35 billion to $10.5 billion, which is a 5% to 7% decline from current levels.

Full-year earnings guidance was also lowered to a range of $9.48 to $9.73 per share, down from $10.95 to $11.15, and below the $10.84 analysts had expected. 

Michael Burry doubles down despite the slide

“Big Short” investor Michael Burry had big bets on LULU stock, which is about 17.4% of his total portfolio. But despite the disappointing results, Burry shared an optimistic view, calling the stock a "trickster" in his Substack post:

“Today, lululemon (LULU) is the trickster in my portfolio. This time the trickster is my largest position, and it does seem determined to take me where mermaids fear to tread.” 

Burry said he plans to keep buying if shares trade below $100, adding that his position is down about 20% from his last purchase. He pointed to past investments that did really well despite initially crashing. These included one in Avanti and others in companies like Adobe and Veeva Systems.