Lululemon Athletica (NASDAQ: LULU) is guiding for earnings per share of just $9.48 to $9.73 in fiscal 2026, a sharp drop from the $13.26 it posted the prior year.
That guidance already bakes in $0.86 per share from a tariff refund, meaning the underlying operating performance is weaker than even the headline numbers suggest.
Management is also sitting on $105 million in additional possible tariff refunds that it excluded from guidance entirely, citing uncertainty around the reimbursement process.
The revenue trajectory is equally troubling, with the company projecting a decline of 10% to 11% in its third quarter, translating to sales of $2.29 billion to $2.32 billion.
In the quarter ended August 2, 2026, revenue already fell 4.3% from a year earlier, with North America — the brand’s core market — down 8%.
Leggings, one of the company’s signature product categories, saw sales drop roughly 20% in that period, coming in below what management had anticipated.
Management attributed the traffic weakness partly to negative commentary across media and social channels, while several new product launches also underperformed internal expectations.
To address the product struggles, Lululemon brought in the former chief executive of Athleta as its new chief product officer — a newly created role — on October 7, 2026, roughly a month after Heidi O’Neill assumed the chief executive position.
Against that backdrop, the stock’s valuation looks less like a bargain and more like a warning, with shares trading at just 8.4 times earnings while the broader S&P 500 has gained 13.4% year to date as LULU has shed 47.2%.
The valuation gap with Nike (NYSE: NKE) is striking on paper: investors pay 17.8 times earnings for Nike despite the fact that Lululemon converted 17.8% of its revenue into operating profit over the past four fiscal quarters, more than double Nike’s 8.2%.
Lululemon also grew revenue 1.7% over those four quarters while Nike’s revenue contracted 1.2%, making the premium Nike commands over Lululemon difficult to justify on fundamentals alone.
The margin picture, however, is distorted by a one-time tariff refund that added 5.6 percentage points to the August quarter’s reported operating margin of 18.8%; strip that out and the margin would have been approximately 13.2%, compared to 20.7% in the same quarter a year earlier.
Even adjusting the full four-quarter margin for the refund brings Lululemon’s figure down to roughly 16.6%, which is still nearly twice Nike’s but well below the unadjusted 17.8% that the headline comparison implies.
Deckers Outdoor and Ralph Lauren trade at higher multiples than Lululemon — 11 times and 23.8 times earnings respectively — and both delivered stronger revenue growth, with Deckers up 7.9% and Ralph Lauren up 14.7% over their latest four quarters.
Ralph Lauren has also returned 16.6% to shareholders over the past year, while Lululemon has lost 42% and Nike has fared only marginally better with a decline of 44.1%.
The number investors will be watching most closely is year-over-year revenue when Lululemon reports its next set of results in December 2026, which will indicate whether the sales deterioration is stabilizing or accelerating further.
