AI Takeaway
Lululemon's Q2 FY2026 results showed modest revenue growth of 4.3% to $2.47B, but profitability deteriorated sharply with gross margin contracting 417 bps to 54.2% and net income falling 38.0% to $195M due to rising costs.
Revenue
$2.47B
++4.26% YoY
EPS (Basic)
$1.69
-35.25% YoY
Gross Margin
54.2%
-4.18% YoY
Operating Income
$276.95M
-36.86% YoY
Filed · Analysis updated · Source: SEC EDGAR 10-Q filing
Revenue grew 4.3% YoY to $2.47B in Q2 FY2026, a deceleration that was overshadowed by significant margin compression. Cost of revenue surged 14.7% YoY to $1.13B, outpacing revenue growth by more than 10 percentage points, signaling meaningful cost headwinds.
Source: Source: 10-Q Income Statement
Gross margin fell from 58.3% to 54.2% YoY, a decline of approximately 417 basis points. This resulted in gross profit declining 3.2% to $1.34B despite higher revenues, reflecting elevated product and supply chain costs.
Source: Source: 10-Q Income Statement / Key Ratios
Operating income dropped sharply from $438.6M to $276.9M (-36.9% YoY), with operating margin compressing from 18.5% to 11.2%. SG&A expenses rose 12.4% to $1.06B, adding further pressure beyond the gross margin decline.
Source: Source: 10-Q Income Statement
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Upgrade to unlockGross margin declined approximately 417 basis points YoY to 54.2%, driven by a 14.7% surge in cost of revenue that far outpaced revenue growth of 4.3%. If cost pressures persist — whether from supply chain, raw materials, or tariffs — profitability could deteriorate further. Operating margin has already fallen from 18.5% to 11.2% in a single year.
Source: Source: 10-Q Income Statement / Key Ratios
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Upgrade to unlock| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Revenue | $2.47B | $2.37B | +4.26% |
Cost of Revenue | $1.13B | $987.53M | +14.71% |
Gross Profit | $1.34B | $1.38B | -3.20% |
Operating Income | $276.95M | $438.63M | -36.86% |
Net Income | $195.05M | $314.57M | -38.00% |
EPS (Basic) | $1.69 | $2.61 | -35.25% |
EPS (Diluted) | $1.69 | $2.60 | -35.00% |
SG&A Expense | $1.06B | $942.87M | +12.42% |
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Total Assets | $8.53B | $7.43B | +14.82% |
Current Assets | $3.99B | $3.58B | +11.50% |
Total Liabilities | $3.71B | $3.14B | +17.98% |
Current Liabilities | $1.79B | $1.57B | +14.11% |
Stockholders' Equity | $4.83B | $4.29B | +12.50% |
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Operating Cash Flow | $214.44M | $-118.95M | +280.27% |
Investing Cash Flow | $-138.85M | $-106.84M | -29.96% |
Financing Cash Flow | $-378.52M | $-467.97M | +19.11% |
Share Buybacks | $361.76M | $434.44M | -16.73% |
D&A | $135.34M | $114.53M | +18.17% |
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Gross Margin | 54.2% | 58.3% | -4.18% |
Operating Margin | 11.2% | 18.5% | -7.30% |
Net Margin | 7.9% | — | — |
ROE | 4.0% | — | — |
ROA | 2.3% | — | — |
Current Ratio | $2.226 | — | — |
Debt to Equity | $0.768 | — | — |
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Based on the filing data, Lululemon reported basic EPS of $1.69 in Q2 FY2026, down 35.2% from $2.61 in the prior year period. Whether this beat or missed Wall Street consensus estimates is not available in the filing itself, but the sharp YoY decline in profitability suggests results were significantly weaker than the prior year.
The key takeaway is that while revenue grew 4.3% to $2.47B, profitability deteriorated sharply — gross margin fell ~417 bps to 54.2%, operating income dropped 36.9% to $277M, and net income fell 38% to $195M. Rising costs (cost of revenue +14.7%, SG&A +12.4%) were the primary culprits squeezing margins.
Lululemon's profit fell primarily because costs grew much faster than revenue: cost of revenue surged 14.7% and SG&A rose 12.4%, while revenue only grew 4.3%. This cost-revenue mismatch caused gross margin to compress from 58.3% to 54.2% and operating margin to fall from 18.5% to 11.2%.
Lululemon's short-term financial health appears solid with a current ratio of 2.23 and operating cash flow of $214.4M, a major improvement from -$119M a year ago. However, the company's profitability metrics have weakened significantly, with net margin at 7.9% and ROE at just 4.0%, raising questions about the sustainability of its premium margin profile.
Lululemon repurchased $361.8M worth of shares in Q2 FY2026, down 16.7% from $434.4M in the same period last year. Despite the earnings decline, the company continues to actively return capital to shareholders through buybacks, which helped partially offset the EPS impact of lower net income.