Lululemon Athletica is entering a critical leadership transition after another quarter of declining sales and a second reduction to its full-year outlook. The athletic-apparel company continues to face weaker demand in North America, increased competition and tariff-related cost pressures, while a one-time refund temporarily supported second-quarter profitability.

Sales Decline as the Americas Remain Under Pressure

Lululemon reported $2.42 billion in second-quarter revenue, down 4% from $2.53 billion a year earlier and below the approximately $2.46 billion analyst expectation. Global comparable sales declined 9%, or 10% on a constant-dollar basis, marking a significant deterioration in the company’s underlying sales momentum.

The weakness remains concentrated in the Americas, Lululemon’s largest market. Americas revenue fell 8%, while comparable sales declined 12%. The region represented approximately 67% of total quarterly revenue, meaning continued weakness there has a disproportionate effect on the group’s overall performance.

International markets provided only partial relief. China Mainland revenue increased 4%, although comparable sales declined 2%, while Rest of World revenue increased 5% with comparable sales down 4%. The geographic mix indicates that Lululemon’s international expansion remains an important offset, but has not yet been sufficient to compensate for the slowdown in its core North American business.

Tariff Refunds Lifted Earnings but Do Not Resolve the Operating Pressure

Reported diluted EPS was $2.92, compared with $3.10 a year earlier. However, the figure included approximately $0.86 per share from IEEPA tariff refunds and associated interest, making the headline earnings figure less reflective of the underlying business environment.

Lululemon received $134.5 million in tariff refunds during the quarter, together with $4.1 million of related interest. The refund contributed approximately 560 basis points to the quarterly gross-margin improvement, helping gross margin reach 60.5%, up 200 basis points from a year earlier.

Despite that benefit, operating income declined 13% to $453.7 million, while operating margin fell 190 basis points to 18.8%. The results illustrate the difference between a temporary improvement in reported profitability and the broader operating challenge facing the company. Lululemon also ended the quarter with approximately $1.4 billion in cash, providing financial flexibility as management works through the downturn.

New Leadership Inherits a Sharply Reduced Outlook

Lululemon now expects FY26 revenue of $10.35 billion to $10.50 billion, compared with its previous forecast of $11.00 billion to $11.15 billion. Adjusted EPS guidance was reduced to $9.48 to $9.73 from $10.95 to $11.15 previously. Third-quarter revenue is expected at $2.29 billion to $2.32 billion, below the approximately $2.53 billion market expectation cited in the supplied earnings data.

The scale of the revision makes the upcoming leadership transition particularly significant. Heidi O’Neill, formerly a senior executive at Nike, is scheduled to become Lululemon’s CEO on September 8. She will inherit a business dealing with declining comparable sales, weaker product momentum and intensifying competition from brands including Alo and Vuori.

The company has also reduced its planned store openings for the year to approximately 35 from an earlier target of 40, reflecting a more cautious approach to expansion. Management’s ability to restore product relevance, improve traffic and conversion in the Americas and manage tariff exposure will be central to any turnaround.

Going forward, investors will be watching whether new leadership can stabilize the Americas business before relying on international expansion to restore growth. The next several quarters should provide a clearer indication of whether the sales weakness represents a temporary product and execution problem or a deeper change in consumer preferences and competitive positioning. Tariff policy, gross-margin normalization after the refund benefit, inventory levels and the pace of comparable-sales recovery will also remain critical indicators as Lululemon enters its next phase.