露露樂蒙 (LULU) 2026 財年第二季財報電話會議：因營收下滑而下修財測指引

重點摘要

• 2026 財年第二季淨營收年減 4% 至 24 億美元，按固定匯率計算則下降 5%。同店銷售額下降 10%。
• 北美營收下降 8%；中國大陸市場按報表計價成長 4%，但按固定匯率計算下降 2%。世界其他地區營收增加 5%，按固定匯率計算則成長 6%。
• 稀釋後每股盈餘 (EPS) 為 2.92 美元，低於去年同期的 3.10 美元。該結果包含扣除稅項後來自關稅退款及相關利息的每股 0.86 美元收益。
• 產品表現持續缺乏一致性。女性緊身褲銷量下降約 20%，而 Groove、Define、Scuba 以及部分寬鬆版型 (away-from-body) 下裝的需求則較為強勁。
• 管理層調降 2026 全年營收指引至 103.5 億至 105 億美元，代表下降 5% 至 7%，並將稀釋後每股盈餘指引調降至 9.48 至 9.73 美元。
• 管理層指出，客流量壓力是北美與中國大陸市場的主要弱點。公司正在增加行銷投資，同時緊縮開支並減少計劃中的淨新開門市數量。

主要財務數據

本季包含來自《國際緊急經濟權力法》(IEEPA) 關稅退款的 1.345 億美元稅前收益，使毛利率與營業利益率提升了 560 個基點。若扣除退款，關稅使毛利率減少 160 個基點。降價促銷增加 70 個基點，而固定成本去槓桿效應則使毛利率減少 230 個基點。

銷售、一般及行政費用 (SG&A) 占營收比重從 37.7% 上升至 41.7%。管理層將此增幅歸因於銷售槓桿降低、門市與行銷投資，以及委託書爭奪戰費用，但部分被較低的績效獎金和成本控制所抵銷。

業務與營運表現

北美市場

北美營收下降 8%。美國營收下降 8%，而加拿大按報表計算下降 11%，按固定匯率計算下降 9%。管理層提及客流量疲軟、產品推出缺乏一致性以及品牌好感度面臨壓力。

公司正在降低門市的 SKU 密度，並依活動類型重新整理商品組合。最初 15% 的 SKU 縮減計劃正擴展至全線門市。Lululemon 也在測試更在地化的商品組合、新陳列架以及額外的產品精選組合。

中國大陸及國際市場

中國大陸營收按報表計算成長 4%，按固定匯率計算則下降 2%。管理層將放緩歸因於媒體與社群負面評論影響了品牌好感度，以及天貓 618 活動的變動與公司決定不參與後續促銷活動。

世界其他地區營收增加 5%，按固定匯率計算成長 6%。南韓仍是公司表現最強勁的市場之一。澳洲面臨更具促銷性質的零售環境，日本則經歷觀光客流量下降。歐洲、中東及非洲 (EMEA) 地區受區域衝突與歐洲觀光業疲軟影響。

產品趨勢

第二季女性緊身褲銷量下降約 20%。管理層表示消費者偏好正轉向寬鬆剪裁 (away-from-body)，但該類產品的成長尚未完全彌補緊身褲需求的疲軟。

表現較佳的款式包括 Groove 寬褲、Align 折腰束口褲、Breezily、改良版 Dance Studio 長褲、Define 以及 Scuba。男裝方面，Metal Vent Tech T恤和高爾夫上衣表現良好，管理層亦指出對 ABC 下裝帶來正面效應。配件及其他營收下降 13%，反映出儘管背包表現強勁，但包類商品依然疲軟。

Lululemon 正透過其更快速的追單流程將訂購產品量較去年增加約 20%。管理層表示正優先考慮熱銷款式，同時管理對供應商的未來庫存承諾。

行銷與成本措施

公司計劃下半年增加行銷投資，聚焦於品牌建立、社群內容、創作者與社群活動。SeaWheeze 吸引了近 10,000 名跑者，而其線上 Strava 挑戰賽則記錄到來自 120 個國家的 85,000 多名參與者。

與此同時，管理層正減少差旅費用、專業服務費與門市工時，同時放緩員工人數成長。計劃中的 2026 年淨新開門市數量從約 40 家減少至約 35 家。公司亦預期快閃店將從 2025 年底的 65 家減少至 2026 年底的約 40 家。

管理層指引

管理層預計第三季北美營收將下降 15% 左右，而中國大陸與世界其他地區按報表計算預計將成長 3% 至 5%。就全年而言，預計北美將下降 10% 出頭，中國大陸將成長 7% 至 9%，世界其他地區將成長 5% 左右。

全年指引包含第二季確認的關稅退款帶來的每股盈餘 0.86 美元收益，但假設不會有額外的退款回收。該指引亦排除未來股份回購的影響。資本支出預期約為 6.8 億至 7 億美元。

風險與關注焦點

• 第三季開局緩慢，且管理層對下半年的展望假設北美趨勢相較第二季進一步轉弱，而國際市場表現則大致維持一致。
• 實體門市與數位管道的客流量持續承壓。轉換率亦同比下滑，儘管管理層表示並未進一步惡化。
• 新品推出表現依然缺乏穩定性，且寬鬆版型下裝的成長尚未完全彌補緊身褲的下滑。
• 儘管持續控制費用，但營收減少仍造成顯著的固定成本與 SG&A 去槓桿效應。
• 預期將進行額外的季節性清倉，預估第三季降價促銷將相較去年同期增加約 60 個基點。
• 未來《國際緊急經濟權力法》(IEEPA) 關稅退款的時間與金額仍具不確定性。約 1.05 億美元的潛在額外退款尚未納入指引中。

分析師問答集錦

管理層表示門市擴展將保持克制。北美計劃新開的門市多數為高效益的快閃店轉為常設店或戰略要地，而中國大陸的擴充則正根據目前表現及其長期市場潛力進行審視。

在成本方面，管理層表示正檢視商業模式的所有環節，以使費用與目前的營收趨勢一致。然而，產品開發與品牌投資仍受保護，屬於優先項目。

被問及核心問題是客流量還是產品時，管理層認定客流量是北美和中國大陸市場更大的驅動因素。行銷旨在重建品牌考慮度，而更快速的產品開發與追單能力正用於提升轉換率。

管理層預計第四季利潤率壓力將相較第三季有所緩和，原因在於固定成本去槓桿效應減少、關稅緩解效益擴大，以及降價促銷與去年同期大致持平。

完整業績電話會議逐字稿

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完整財報電話會議逐字稿

管理層陳述

Operator

Thank you for standing by. This is the conference operator. Welcome to the lululemon athletica inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions]

I would now like to turn the conference over to Howard Tubin, Vice President, Investor Relations for lululemon athletica. Please go ahead.

Howard Tubin

Thank you, and good afternoon. Welcome to lululemon's second quarter earnings conference call. Joining me today are Meghan Frank, Interim Co-CEO and CFO; and Andre Maestrini, interim Co-CEO, President and Chief Commercial Officer.

Before we get started, I'd like to take this opportunity to remind you that our remarks today will include forward-looking statements reflecting management's current forecast of certain aspects of lululemon's future. These statements are based on current information, which we have assessed, but by which its nature is dynamic and subject to rapid and even abrupt changes. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business, including those we have disclosed in our most recent filings with the SEC including our annual report on Form 10-K and our quarterly reports on Form 10-Q.

Any forward-looking statements that we make on this call are based on assumptions as of today, and we expressly disclaim any obligation or undertaking to update or revise any of these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our quarterly report on Form 10-Q and in our earnings press release.

In addition, the comparable sales metrics given on today's call are on a constant dollar basis. The press release and accompanying quarterly report on Form 10-Q are available under the Investors section of our website at www.lululemon.com. On today's call, Meghan and Andre will begin by discussing recent business developments across our regions and the plans and strategies we are implementing to drive improved performance. Meghan will then discuss our detailed Q2 financials, the impact recent trends are anticipated to have on our performance for the remainder of the year and our revised guidance outlook. And then the team will be happy to take your questions.

Before I turn the call over to Meghan, I'd like to remind investors to visit our investor site, where you'll find a summary of our key financial and operating statistics for the second quarter as well as our quarterly infographic. Meghan, over to you.

Meghan Frank

Thanks, Howard. Welcome, everyone, and thank you for joining us. I want to start the call by taking you through Q2 results. What we're seeing in the business today and how this is informing our decision to lower our guidance for the full year. Then Andre and I will spend most of our time discussing North America and China Mainland, what's happened since our last earnings call and the actions we are taking across these markets to improve the trajectory of the business.

As you recall, we began the year with an action plan focused on three pillars: Product creation, product activation and enterprise enablement. A key objective of our plan is to strengthen our full-price sales trajectory and position the company for long-term growth. In Q1, we saw some encouraging signs indicating we were moving in the right direction to strengthen performance in North America while continuing to expand our global growth engine. As we moved into Q2, we faced negative commentary in the media and social channels, which impacted traffic and softer than planned response to some new product launches, which contributed to a moderating sales trend. As you've seen from our press release, Q2 revenue came in below our expectations with the shortfall driven predominantly by China Mainland, where revenue grew 4%. North America finished down 8% for Q2, slightly ahead of our guidance.

As we move into Q3, while we are seeing good guest reaction to our activations and some of our newer styles, 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. Based on our assessment of these current trends, we've updated our guidance for the remainder of the year. At the enterprise level, we have several key actions underway to improve our performance. Andre and I will get into the regional detail in a moment.

Our product teams are chasing into strong performers, including our Groove and Define styles more aggressively than in the past and working with vendors to strategically manage future inventory flows. On brand, we are moving forward with our increased marketing investments in the back half of the year. We're seeing strong community engagement with our recent campaigns and activations. And while we haven't yet seen an impact on the top line trajectory, we are encouraged by the response. And on expenses, we've been continuing to drive efficiency across the organization. Given current trends, we've heightened that focus in the back half of the year, while protecting investments in product and brand.

We're excited our incoming CEO, Heidi O'Neill, joins us next week. And we expect she will take a deep dive into the business, evaluating our strategy and current action plans. And we look forward to the fresh perspective she will bring to define the path forward for lululemon's next chapter. In the near term, our teams remain focused on execution.

As we look to the future, we remain confident in the underlying strength of lululemon's brand, the connection we have to our highly engaged community of guests and ambassadors and the equity we have built. We believe our greatest opportunity is to build on this foundation through continued investment in product innovation, reinforcing our premium positioning and the long-term brand health. At the same time, our strong financial position allows us to invest in near-term actions that support full price sales and top line improvement while remaining focused on the significant growth opportunities ahead.

I'll now share an update on our action plan and then hand it over to Andre to discuss regional performance. The markets we operate in are competitive, which makes it imperative for us to focus on unique and innovative ways to inspire our guests. As you know, we've been working on this through our action plan with a focus on product and brand. We anticipated our plan would take some time to gain traction as we bring in new innovations, elevate our store and digital experience and increase and redirect our marketing spend. But we expected a better response than we are seeing as we enter the second half of the year. So let me share some details starting with product.

As we stated on prior calls, a top priority for the management team is returning to full price sales growth as we focus on restoring and protecting our brand health for the long term. Despite the headwinds we are experiencing, we are moving forward with our actions in this area, which will include bringing updates to our core franchises, introducing new styles, overall SKU reductions and tightly managing inventory levels. In addition, we are leaning into our chase capabilities. As we discussed on prior calls, faster chase times allow us to read and react to guest demand and get back into certain strong-performing styles more quickly. We're chasing approximately 20% more volume this year relative to last year.

In Q2, while we're seeing green shoots in product, particularly within some of our newer away-from-body bottoms for women, we are also seeing an inconsistent performance in our assortment overall. This included a greater-than-expected slowdown in some of our core categories, particularly leggings. In women's tops, guests are responding well to Scuba and Steady State, now offered in our SuperLoft fabric and our Define franchise continues to perform well. In men's, we are seeing strength in Metal Vent Tech Tees and our golf tops. Supported by the storytelling campaigns we developed around some of our elite ambassadors, including Lewis Hamilton and Min Woo Lee. We're also pleased with the halo effect designed for golf tops are having on our ABC bottoms as they pair well together and provide guests with a versatile and technical solution on the golf course.

Let me now spend a moment on our women's bottoms business, where performance has been mixed. Leggings trends so far this year have been below our expectations with sales declining approximately 20% in Q2. While we have been planning into lower legging sales, and we are seeing good traction in several of our away from body styles, we are not yet able to fully offset these declines. Leggings remain an important category for us where we remain the market leader. The wellness trend is strong. We continue to be a leader in technical fabric development and guests continue to purchase our leggings for their exercise and training needs, particularly yoga and Pilates. We remain committed to the category, but there are shifts occurring with guests looking for away from body silhouettes. We're happy with the performance of several new away-from-body styles we've recently introduced, including the Groove Wide-Leg, the Align Foldover Jogger, the Breezily and our updated Dance Studio Pants. All are trending well, and we expect momentum to build in the back half of the year and into 2027.

As we look at the second half of the year, in addition to away-from-body bottoms, we'll continue to focus on new and updated styles across our activities. You'll see updates across run with new cold weather innovations in outerwear featuring Wunder Puff and our Featherweight Down franchise and a new version of our popular Big Cozy, to highlight just a few.

I also wanted to mention accessories where we experienced a 13% decline in Q2. While backpacks are strong, we are seeing overall softness in bags. In addition, we are strategically editing the overall accessories assortment to better align with our go-forward vision for the brand.

Moving now to product activations and marketing. We are working to strengthen brand relevance, desirability and demand by engaging more directly with guests through social channels and differentiated community experiences while using those platforms to tell richer stories about our brand, products and innovation. We held several successful events in Q2 and into Q3, and engagement levels are encouraging.

Let me highlight two. In June, we celebrated our foundation in yoga with a launch for summer series. We partnered with leading yoga, Pilates and sculpt instructors to bring free classes to tens of thousands of guests across 70 cities in the U.S. and Canada. More recently, in August, we brought back our SeaWheeze Half Marathon and Festival for the first time since 2019. The reaction from guests to the local community and across social media was outstanding. Nearly 10,000 runners from 24 countries ran the half marathon and approximately 14,000 attendees joined us for an evening of movement and music headlined by DJ John Summit. This event brought incredible energy to our hometown market of Vancouver and through our virtual SeaWheeze challenge on Strava, we extended participation well beyond race weekend with more than 85,000 participants from 120 countries around the world.

Based on the strong response, we already made the decision to bring back SeaWheeze again next summer. Guest engagement in events like this demonstrate the passion for our brand and the strength of our connections with the communities we serve. We are increasing our marketing investment in the back half of the year to drive improved brand heat, guest acquisition, traffic and overall top line performance. We are investing more heavily in mid-funnel, creator and social content to build relevance, engagement and product consideration. One recent example is our YouTube series featuring some of our elite athletes. We remain confident these investments will help to reignite our sales trends over time as we continue to elevate our product and marketing execution.

Let me now speak to our enterprise enablement and cost management initiatives. We've been reducing our expense base and working across the enterprise to operate as efficiently as possible. Given current top line trends and our expectations for the back half, we are taking an even more aggressive stance on expense management. Our ongoing initiatives continue, efficiencies across our supply chain and non-merchandise procurement and implementation of new technologies, including AI powered systems and automation.

On discretionary spending, we are driving new efficiencies across travel, professional fees, store labor hours and headcount growth moderation. On real estate, we continue to scrutinize every deal across all new store openings and optimizations. We're now planning approximately 35 net new store openings this year, down from our guidance of approximately 40 last quarter. And our plans call for a significant reduction in pop-up stores from 65 at the end of last year to approximately 40 by the end of 2026. We're being intentional with our cost management strategies and looking to drive enduring efficiencies beyond this year. We won't take steps that will negatively impact the brand or our long-term growth potential, but we recognize that current top line trends necessitate a smaller expense profile, and we are acting accordingly.

We know there is much more work to be done. Our management team leaders and employees are focused on serving our guests and executing initiatives to drive an inflection in our business.

Now let me turn it over to Andre to discuss regional performance in more detail. Andre?

Andre Maestrini

Thanks, Meghan. It's good to be here with you today to discuss our results and the work underway across the business. While we are focused on improving the trajectory of the business in the short term, we are also making the appropriate decision to strengthen our foundation and drive more sustainable growth over the medium and long term. Let me provide more details about our regional performance beginning with North America. In Q2, revenue declined 8%, slightly ahead of our expectations. In the U.S., we saw a decrease of 8%, while in Canada, revenue was down 11% on a reported basis and down 9% on a constant currency basis.

Meghan already spoke to our global product and brand initiatives that we expect will benefit all regions. So let me spend a few moments updating you on our strategies to enhance the guest experience in store and online. We are seeing good results in our store, where we are implementing new ways to elevate the guest experience through updated fixture package, further reductions in SKU density and increased localization of assortment. We're also better organizing the guest journey by changing product adjacencies and merchandising by activity.

In digital, we have a sharp focus on storytelling and driving conversion when guests visit our e-commerce sites. We recently redesigned our homepage as well as category detail page. And in the next few weeks, we will be updating also our product detail page.

Shifting now to China Mainland. As Meghan mentioned, we have seen several issues impacting brand sentiment in product in China, which have hurt traffic and overall sales momentum. This began with spikes of negative commentary in the media and on social channels at the end of Q1 and early Q2 and was compounded by the additional commentary post our Q1 call related to an event we held on the Great Wall of China. These factors have contributed to softness in both our store and digital channels. Performance in e-commerce further impacted by a decision made by Tmall not to anniversary their 618 event in the same way as last year. In addition, we did not participate in promotions following this event.

In Q2, revenue increased by 4% on a reported basis and declined 2% on a constant currency basis, well below our expectation. As you know, we've experienced rapid growth in China Mainland over the last several years. But while we are disappointed with the current performance in the region, we are focused across both product and brand efforts to drive inflection. And we remain confident in our teams, our strategy, the underlying strength of our brand and the opportunity China Mainland continues to hold for Lululemon's future. End of Q2, we were pleased with the guest response to our Together Feels Better campaign. This featured both in-store and online moments with the highlight being a live stream event simultaneously broadcast across 5 platforms. We featured lululemon ambassador and world champion swimmer, Wang Shun, along with other athletes to bring to life our campaign message. And we are building further our credibility in tennis and we're excited to celebrate with lululemon ambassador, Guo Hanyu, the first Chinese athlete in our ambassador roster to win a Grand Slam Tennis title during Wimbledon.

Looking ahead, we will strengthen our brand narrative and messaging through a multilayered approach, including key new store openings with associated activations, partnering with Tmall for a Super Brand Day event and leverage our thought leadership in the well-being space with an event for World Mental Health Day. And this momentum and the guest engagement, we continue to see with these campaigns and activations show the underlying strength of lululemon in the market and the potential that exists for us in China Mainland.

Next, I will spend a few minutes on our Rest of the World segment, comprised of EMEA and APAC. In total, Q2 revenue in Rest of the World increased 5% on a reported basis and 6% in constant currency.

Let me share a few more details beginning with South Korea. This market continues to be one of our strongest across the globe, and we were excited to celebrate our tenth anniversary in August. We reopened our first-ever store in this market with our new design concept and hosted a special evening event and a series of movement classes attended by guests and ambassadors. In Australia, our top line performance has been impacted as we've seen the market grow increasingly promotional. As we are not joining in with promotional events, we have seen a slowing in guest purchase behavior, but we continue to see strong guest engagement with our events with a recent example being our Sydney Marathon activations. In Japan, while the market is still experiencing reduced traffic of tourism, our brand remains strong. We recently opened our largest store in APAC in Tokyo, Harajuku district, and it's seen a great response from guests.

And lastly, in EMEA, while our Middle East franchise business continues to be impacted by the conflict in the region as does tourism in Europe, we remain excited about our potential in the region. Beginning last week, we launched our first marketing collaboration with the online leader Zalando across 12 markets in Europe and will be showing up in unique ways at the Berlin Marathon later this month. And we continue to expand our presence through recent franchise store openings in Athens, Greece and in Bucharest, Romania. This market expansion speaks to the still untapped demand for our brand in new markets as we look at our longer-term plans.

I will now hand it back to Meghan to share more details about our financial performance.

Meghan Frank

Thanks, Andre. Let me now get into the Q2 financial review and our updated guidance outlook. For Q2, total net revenue decreased 4% or 5% in constant currency to $2.4 billion and comparable sales decreased 10%. Within our regions and channels, results were as follows: North America revenue decreased 8% with comparable sales down 12%. By country, revenue decreased 11% or 9% in constant currency in Canada and decreased 8% in the U.S. China Mainland revenue increased 4% or decreased 2% in constant currency, with comparable sales decreasing 8%. And in our Rest of World segment, revenue increased by 5% or 6% in constant currency with comparable sales decreasing 3%.

In our store channel, total sales decreased 6%, and we ended the quarter with 825 stores globally. Square footage increased 11% versus last year, driven by the addition of 41 net new lululemon stores since Q2 of 2025. During the quarter, we opened 9 net new stores and completed 12 optimizations. In our digital channel, revenues decreased 6% and contributed $0.9 billion of top line or 39% of total revenue. And by category, men's revenue decreased approximately 1% versus last year and women's decreased 4%, while accessories and other declined by 13%.

Gross profit for the second quarter was $1.46 billion, or 60.5% of net revenue compared to 58.5% in Q2 2025. Gross margin increased 200 basis points compared to last year and was driven primarily by the following: 560 basis points of benefit from IEEPA tariff refunds, a 150 basis point decline in overall product margin driven predominantly by tariff impact and markdowns. Tariffs exclusive of the refund had a gross negative impact of 160 basis points in the quarter, offset by 100 basis points related to our enterprise efficiency initiatives.

Markdowns increased 70 basis points. Deleverage on fixed costs was 230 basis points, driven by ongoing investments in our store, fleet and regional mix and additional fulfillment costs as we optimize our North America DC network. Foreign exchange had 20 basis points of favorable impact. Excluding the tariff refund, gross margin was 50 basis points better than our guidance for a 410 basis point decline driven by 40 basis points related to the reversal of an incentive compensation accrual and favorable channel and category mix, offset by slightly higher markdowns.

Moving to SG&A. Our approach continues to be grounded in prudently managing our expenses while also strategically investing to strengthen our foundation and position lululemon for future growth. SG&A expenses were approximately $1.01 billion, or 41.7% of net revenue compared to 37.7% of net revenue for the same period last year. The increase of 400 basis points relates to fixed cost deleverage, continued investment in guest experience, including store labor hours, marketing spend and fees related to the proxy contest. These were partially offset by an incentive compensation accrual reversal and our ongoing initiatives to prudently manage costs across the enterprise.

Relative to our guidance for SG&A deleverage of 500 basis points, the improvement was driven by lower incentive compensation and additional actions to manage costs across the business. Operating income for the quarter was $454 million or 18.8% of net revenue compared to 20.7% of net revenue in Q2 2025. This result includes $134.5 million pretax benefit from IEEPA tariff refunds, which added 560 basis points to operating margin.

Tax expense for the quarter was $138.1 million, or 29.6% of pretax earnings compared to an effective tax rate of 30.5% a year ago. The decrease was primarily due to a decrease in nondeductible expenses in international jurisdictions partially offset by adjustments upon the filing of income tax returns. Net income for the quarter was $329 million or $2.92 per diluted share compared to $3.10 for the second quarter of 2025. Tariff refunds and associated interest net of tax, contributed $0.86 to EPS. Capital expenditures were approximately $150 million for the quarter compared to approximately $178 million in the second quarter last year. Q2 spend relates primarily to investments to support long-term business growth including our multiyear distribution center project, store capital for new locations, relocations and renovations and technology investments.

Turning to our balance sheet highlights. We ended the quarter with $1.4 billion in cash and cash equivalents and nearly $600 million of available capacity under our committed revolving credit facility. Inventory at the end of Q2 is $1.7 billion, a decrease of 1% on a dollar basis. On a unit basis, inventory decreased approximately 7%. The difference between dollar inventory growth and unit inventory growth relates predominantly to higher tariff costs and foreign exchange. We repurchased approximately 2.7 million shares at an average price of $120.

Let me shift now to our guidance for Q3, which has gotten off to a slow start. While we are working hard to change the trajectory of the business and adapting our action plan in light of current trends, we're taking a prudent approach to our outlook for the second half of the year. At the highest level, our revenue guidance for the second half assumes a slower trend relative to Q2 in our North America business and performance relatively consistent with Q2 trends in international. And while our teams remain hard at work executing our plans across product, brand and guest experience, and we strive to do better, we have not factored this potential into our financial outlook.

For Q3, we expect revenue in the range of $2.29 billion to $2.32 billion, representing a decline of 10% to 11%. We expect to open approximately 17 net new company-operated stores and complete 15 optimizations. By region, on a reported basis, we expect North America to decline in the mid-teens, the [ U.S. ] also in that range and Canada lower. We expect the China Mainland and the Rest of World to increase 3% to 5%. We expect gross margin in Q3 to decrease approximately 250 basis points compared to Q3 of 2025. While we expect an improvement in product margin, this will be offset by deleverage on fixed costs and ongoing investment in store openings, optimizations and our distribution network.

When looking specifically at markdowns, we expect an increase of approximately 60 basis points versus last year. While we continue to focus on improving full price selling, the slower-than-expected top line trends will necessitate additional seasonal clearance. In Q3, we expect our SG&A rate to deleverage by 800 basis points relative to Q3 2025. This increase will be driven primarily by deleverage associated with lower sales than initially expected, increased marketing and expense timing versus last year. And we will continue to invest strategically in our growth initiatives in IT infrastructure. When looking at operating margin for Q3, we expect it to be approximately 6.5% versus 17% in Q3 2025 for the reasons I just mentioned.

Turning to EPS. We expect earnings per share in the third quarter to be in the range of $0.93 to $0.98 versus EPS of $2.59 a year ago. We expect our effective tax rate in Q3 to be approximately 30%. When looking at inventory at the end of Q3, we expect dollar growth to be in the low single-digit range with units down slightly.

Turning to our full year 2026 guidance outlook. We now expect revenue to be in the range of $10.35 billion to $10.5 billion, down 5% to 7% relative to 2025. By region, we now expect revenue in North America to be down in the low double digits with the U.S. also in that range and Canada slightly lower. We now expect revenue in China Mainland to be up in the high single digits. And in Rest of World, we now expect revenue to increase in the mid-single digits. Globally, we now expect to open approximately 35 net new company-operated stores in 2026 and continue to expect to complete approximately 35 optimizations. This will contribute to overall square footage growth of approximately 10%. Our new store openings in 2026 will include approximately 10 stores in North America, including 7 in Mexico and approximately 25 in our international markets.

For the full year, we now expect gross margin to decrease approximately 80 basis points relative to last year. We expect an improvement in product margin, driven by a 130 basis point positive impact related to the Q2 tariff refund plus ongoing benefits from our mitigation strategies. These benefits are expected to be offset by deleverage on fixed costs and ongoing investment on our new store openings, optimizations and our distribution center network.

When looking at markdowns, we expect an increase for the full year of 40 basis points. When looking at tariffs more closely for the full year, our guidance now assumes a rate of 10% to 12.5% through September, and we continue to assume a rate of 20% for the remainder of the year. In addition, while we continue to participate in the refund process, our guidance assumes no additional recovery of tariffs paid under IEEPA.

Turning now to SG&A for the full year. While we intend to realize significant savings related to the enterprise enablement pillar of our action plan, we now expect an increase of approximately 450 basis points versus 2025. This will be driven by increased deleverage associated with our updated view on top line, increased marketing spend and continued strategic investments in our business to support future growth, including market expansion and improving the guest experience by enhancing our omni capabilities. When looking at operating margin for the full year 2026, we now expect it to decrease by approximately 530 basis points versus last year, which includes the 130 basis point benefit from tariff refunds recognized in the second quarter.

For the full year 2026, we expect our effective tax rate to be approximately 30% versus our 2025 effective tax rate of 29.5%. For the fiscal year 2026, we now expect diluted earnings per share in the range of $9.48 to $9.73 versus EPS of $13.26 in 2025. This updated range includes an $0.86 benefit from tariff refunds recognized in the second quarter, but does not include the impact of any potential additional refunds through the balance of the year.

Our EPS guidance also excludes the impact of any future share repurchases. When looking at inventory, we expect dollar growth to be up in the mid-single-digit range with units approximately flat. At the end of Q2, we had approximately $713 million remaining on our share repurchase program, which we will continue to utilize. Share repurchases remain our preferred method of returning cash to shareholders, and we continue to expect our repurchase levels in 2026 to be in line with 2025.

Finally, for the full year, we now expect capital expenditures to be approximately $680 million to $700 million. The spend reflects investments to support business growth, including capital for new locations, relocations and renovations, DC and technology investments.

Before we take your questions, I want to emphasize that we know there is significant work ahead for us. We're applying what we're learning this year to how we operate globally going forward. Our teams are executing against our action plan now chasing into what's working, investing into brand and community and running a tighter expense base. Andre and I are confident in our leadership teams across every market, and we believe that with the right adjustments to our product assortment, marketing and community activations improved revenue trends will follow. One thing is certain to me, our brand has real opportunity ahead of it. We've seen this with a response to SeaWheeze and engagement with our campaigns and in the strength of our teams around the world. We know our guests continue to love the brand, and we need to consistently give them the product and experience they can expect from lululemon. And as Heidi joins us next week, I'm confident that she'll help us realize this opportunity.

Finally, I want to thank the leaders and employees of our company for their determination to make progress every day and for operating in a way that's consistent with our values as we innovate for our guests.

Operator, we'll now take your questions.

Operator

[Operator Instructions] The first question comes from Alex Straton with Morgan Stanley.

分析師問答

Alexandra Straton

Can you just talk about from a strategic perspective, like where you're at in your journey with stores and reducing SKUs and making it a better experience, and any fleet rationalization considerations going forward? I know you took the targets down. But as you think about it bigger picture and longer term?

Meghan Frank

Great. Thanks, Alex. I'll give some details on just stores overall, and then Andre is going to provide a little bit of color. So in terms of stores, we are scrutinizing every deal. We're opening 35 net new stores this year, about 10 of those net new stores in North America, 7 of those are in Mexico. Of the openings, we've got in North America, about half of them are pop-up conversions where we've got evidence of strong productivity and then the balance would be strategic presence and then key market saturation. So we'll continue to take that posture as we move throughout '27 as well, really scrutinizing every deal. And then I'll pass it to Andre to provide more color.

Andre Maestrini

Yes, absolutely. And what -- to really enhance the guest experience in our stores, specifically in North America, we have made several enhancements to premiumize this experience. It includes a lesser dense presentation, so we decreased SKUs by 15% and now we are rolling it out in the rest of the fleet. We'll have a sharper focus on merchandising and VM. We've seen that organizing the store by activities on one side and lifestyle has improved the storytelling and the engagement of the guest to the range. And in addition, we have a smaller subset of doors where we are testing additional enhancements that include further SKU reductions, more curated assortment based on local taste and preferences, new fixtures packages and also using more imagery and activity mannequins. So once the formula is nailed, we will scale it to the rest of the fleet.

Alexandra Straton

Maybe just one quick follow-up on your promotion comments and how you guys not being promotional is potentially impacting you. Is that a global phenomenon or in certain markets? And also is it in certain categories?

Meghan Frank

Yes. I think what Andre was referring to was in certain markets where we're seeing them be more promotional, for example, Australia, and we are not participating in those promotions. I would say, overall, our goal has been to return to a healthy full-price penetration of business. Clearly, with revenue, not where we expected this year, we have more seasonal product to clear through by year-end, and that's reflected in our guide. So it's not promotions driving that. It's seasonal clearance primarily at end of season.

Operator

The next question comes from Ike Boruchow with Wells Fargo.

Irwin Boruchow

I'm not sure if this is for you, Meghan, but I kind of wanted to ask a bigger picture question about the cost structure of the business. Given the underperformance on top line and the fact that it doesn't feel like that's been fully diagnosed yet, the deleverage you guys are seeing is kind of indicative of a model that is built to be comping fairly positive. How quickly can you adjust the cost structure? And I don't know if that's getting out of leases or looking at the store base. But just curious, the timing of that because if the top line trajectory doesn't turn in the next couple of quarters, it just feels like this could get a bit messier as you kind of get into next year. So just curious of your thoughts.

Meghan Frank

Thanks, Ike. Yes, as I mentioned, we are in action on the cost side. We have had an active work stream in cost management throughout this year, really focused on supply chain, procurement, technology. We have taken some near-term steps to manage discretionary expense. So across some of the buckets I mentioned, like travel, professional fees, store labor hours, moderating headcount growth. I would say, given current trends, we are taking a deeper look to right size the cost base to the current business with still protecting the long-term trajectory of the business and really primarily product and brand, where we feel like we really need to move on the sentiment side as well as support our product engine moving into '27. So I think too early to share beyond the guidance that we shared for '26, but we are taking a hard look across all aspects of our business model.

Operator

Next question comes from Matthew Boss for JPMorgan.

Matthew Boss

So Meghan, on the sequential softening in Mainland China and Rest of World, how much do you attribute to macro relative to product assortment. And can you elaborate on August trends? Or just what gives you confidence in the third quarter as the trough?

Meghan Frank

Yes. So in terms of China, I would say we're really looking at primarily brand noise impacting brand sentiment as well as a softer 618 Tmall event that Andre mentioned. And then we are seeing across the globe newness not perform at expectations. So I would say macro has been challenging in China for some time. We're not pointing to macro specifically as a key issue. As we look to the second half, I would say our quarter-to-date trend does support how we've looked at the international business towards the back half of the year as well as China. And maybe I'll ask Andre to add a few more details on how we're actioning China in the second half.

Andre Maestrini

Yes. In China, we are really focusing on implementing continuous activations of the brand just in the upcoming weeks. We'll have new store openings with the associated activations in key locations of top Tier 1 cities. We also are conducting a Super Brand Day around our outerwear and Wunder Puff icon so a big activation there. And also early October, we are leveraging our leadership in World Mental Health Day activation to keep positioning our brand on wellness, that's the underlying trend there. So all that to counter this initial negative noise that Meghan referred in Q2.

Matthew Boss

And Meghan, just as a follow-up on the 12% comp decline in the Americas in the second quarter and the inconsistency that you cited, are there any green shoots that you've seen in August with product newness now restored to your targeted levels?

Meghan Frank

Yes. I would say August, as reflected in our guidance, has gotten off to a bit of a slow start. That said, we are seeing some green shoots in product, particularly in our away-from-body assortment, including our Groove Pants, Align Foldover Jogger, new Dance Studio. We're also reordering into some silhouettes to Define. We've got a new Scuba offering that's launched and Steady State that's doing well. So what we've reflected in our guidance is what we're currently seeing in the trend, but we are aggressively, as we've mentioned, reordering into what's working and any upside from that would not be reflected.

Operator

The next question comes from Lorraine Hutchinson with Bank of America.

Lorraine Maikis

Understanding that most of your leases are signed for this year, as you look out into next year, are you pausing any of your store opening plans for China or store expansions in the U.S. until you can stabilize those businesses?

Meghan Frank

Lorraine, I would say we're taking a very measured approach to store expansion. So China, I would say we still see tremendous opportunity from a market expansion standpoint there in terms of square footage and store footprint, and we are taking a hard look at that, obviously, given business trends, but taking a long-term view of the opportunity in that market.

In North America, as I mentioned, we just have a handful of new store openings this year, half of which are pop-up conversions where we've really tested that market and it has productivity that supports a full-time location. And then in addition to that, we just have a handful of strategic stores where we feel we need a presence in that market, whether that's a new location or saturation of an existing market that's performing well. I would say we're taking that approach into and we're just taking a hard look at everything given current performance of business, and we will share more about how we see square footage growth for '27 when we give guidance in March.

Operator

The next question comes from Michael Binetti with Evercore.

Michael Binetti

Meghan, I think just a quick one on the model. Your guidance, I think, if I got my math right, it implies a slight improvement in markdowns sequentially from 2Q in each quarter. Are you -- can you just talk us through how you think the seasonal clearance mix will go? Does that roll off by the end of 3Q? And then maybe in China, if we could get a sense of the monthly cadence given your comments around some of the Tmall event 16 -- 618, sorry. If the macro persists there or if the brand issues persist there, is the right thing to do for the brand? Or how are you thinking about whether you'd refrain from promoting again as we get into some of those next Tmall windows, like some of the bigger ones in November?

Meghan Frank

Yes, Michael. So in terms of markdowns by quarter, we were up 70 basis points year-over-year in Q2. We're expecting 60 basis point increase in Q3, so a slight moderation. And then we are against -- up against a high water line in Q4. So we're expecting markdowns to be approximately flat in the fourth quarter and then 40 basis points up for the year. So that's the shape of that, and it is based on seasonal clearance of goods that haven't moved during '26. In terms of China, we saw some pressure in May. It's subsided to some degree in June, and we also saw more pressure in July. And then I'll ask Andre to just comment on Tmall.

Andre Maestrini

Yes. We're definitely with a hyperfocus on the regular price increase in China, and I think we had a healthy performance there. So we continue to use Tmall, it's shop-in-shop, and it's not promotion related. When I refer to the Super Brand Day, it's a full price event on our icons, which is the Wunder Puff to launch our outerwear season. And looking for the end of the quarter and beginning Q4 the 11/11 event, we will just participate as normal to anniversary our previous year's business that we've been doing last year.

Operator

The next question comes from Paul Lejuez from Citi.

Paul Lejuez

Curious, at a high level, if you think you've got a traffic problem that can be solved by increased marketing? Or would you say that you have more of a product problem that requires a little bit more adjustment and time? And how does that answer differ if you think about it region by region?

Meghan Frank

Thanks, Paul. I would say, predominantly, we're seeing the pressure in traffic. We're also seeing negative year-over-year conversion, but we're not seeing that worsen. So we've really pointed to two opportunities. So one being we've seen some pressure on brand heat and sentiment, and we are investing into marketing and some of the activations that we've had throughout this summer. And then we've got some things in front of us including currently, we're right now at the U.S. Open with an activation. We've got fall marathon season coming up. New York, Chicago, Toronto, we'll have a presence with those and then we'll continue some of our social activations through new episodes on our content series there. From a conversion perspective, product, we continue to learn from what's working, not working, reordering aggressively into what is working. And so we're looking to move the needle, I would say, on both fronts with those actions.

Paul Lejuez

Was that all comment about the Americas? Or is that -- you talking globally, Meghan?

Andre Maestrini

Yes, I can take for China. The main issue was more the events that impacted the brand sentiment. So the focus there is to restore the consideration of the brand at levels that were prior to these events. And that's the main driver to restore traffic -- organic traffic and bring back the demand we've been experiencing. So we'll have the swing there and the additional work on newness in products will also benefit China. But the first reason is the main focus there definitely.

Meghan Frank

I'd say, Paul, the traffic being the biggest driver is across both regions.

Paul Lejuez

Got it. And then just market growth by region? How do you view the market that you're playing in, in each region?

Meghan Frank

Yes. I would say the market continues to be competitive across all regions. And we really need to be differentiated, offering new innovation. So our actions are geared towards the market we're operating in, in both North America and China, and I would say both competitive markets.

Operator

The next question comes from Adrienne Yih with Barclays.

Adrienne Yih-Tennant

I guess my first question is, often times, when you get into sort of the trends, the first thing you go back to is sort of the customers, what do they want from you? How are they thinking about the brand. So as you do your kind of customer feedback, what are you finding out about the current customer today and what they need from the brand? My second question is, a lot of the fixes that we're talking about today, stores are sort of at the end of the process, like what do we do about inventory today? Can you talk to us about how you're thinking about the innovation process, the development process, lead times and kind of from the origin, right? What's different about that product development process.

Meghan Frank

Thanks, Adrienne. So I would say in terms of guest feedback, we certainly use that to inform our actions. So we have been doing some consumer research. And I would say what we're hearing is they're looking for new and differentiated product from us, innovation, and they are also looking for those community engagements that we offered. And some of the examples that I provided this summer really show some momentum in that engagement, including SeaWheeze at the level of 10,000 runners -- sorry, 85,000 Strava participants, really some positive momentum in terms of engagement with the brand as well as our summer series. So I would say we are really embedding what we're hearing from our guests into that action plan.

And then in terms of our pipeline, we have made some improvements, as we mentioned, to our go-to-market process to reduce lead times. So that is underway. I think that will continue to improve over time as well as we've really leaned into our chase capabilities. We are reordering into about 20% more than last year. So we've really augmented our capabilities there. And then also from a fast track design perspective, looking to get back into product with a faster lead time from a design to market perspective as well. So certainly looking at improving that over time.

Adrienne Yih-Tennant

Okay. And then my follow-up is on the marketing. You talked about increasing some marketing investments in the back half of the year. Just wondering if you don't know that the product is kind of really kind of resonating, are those marketing kind of higher level? Are they more social? Can you talk about like how that return on that advertising spend, how you're considering that going into that period?

Meghan Frank

Yes. I would say given the challenges we've seen with -- from both the brand heat and product perspective, we do feel strongly that we need to continue to keep our investment level in marketing. I would say we're looking at more mid-funnel, top-of-funnel activations, community engagement, things such as what I've mentioned in terms of SeaWheeze, summer series, going after fall marathon season, our U.S. open activation the content series as well as social. So it's definitely brand-building marketing efforts.

Operator

Next question comes from Dana Telsey with Telsey Group.

Dana Telsey

As you talk about the product and the response to some of the new products that are out there, Meghan, you had mentioned in the prepared remarks a little about adjustments are being made. What are you seeing in response to the new product for men's, women's, tops and bottoms? I know you talked about leggings for women's down 20%. What adjustments do you see need to be made? What's the time line of them being made and did pricing factor into any of it? And then I have a follow-up.

Meghan Frank

Thanks, Dana. So in terms of what's working today, away from body I mentioned is working, Define, Scuba are working. We did see some positive reception to our golf assortment and some attachment to our ABC Pants. We are experiencing some other new products that are not resonating as well. So we're adjusting to that and reordering what is working. And then we've also seen some decline greater than we expected in some of our core categories, including leggings that we mentioned. And there, it's also relevant that we're shifting into away-from-body. We've really seen some positive response to that, and the shift has been happening over time, but it was a little more than we expected in Q2. So we're chasing into that and overall bottoms trends are down in the mid-single digits. So we're offsetting to a degree, but not entirely. So we're looking to improve our position in away-from-body over time.

Dana Telsey

Got it. And then when you think about channel stores and online. Is there at all a difference in the performance of stores and online and traffic patterns to each for the brand?

Meghan Frank

I'd say we've overall seen traffic pressure in both channels as well as some conversion pressure in both channels as well. So it's been relatively consistent, I would say, in terms of where we've seen the impact and really connects back to our priorities of getting after brand sentiment with some of the activations we have planned as well as some conversion actions we have both in product and the improvements we're making there. And then some of the experience pieces that Andre spoke to in terms of store shopability and as well as the e-commerce enhancements we've made toward the look and feel of our website.

Howard Tubin

Operator, we'll take one more question.

Operator

The last question comes from Mark Altschwager with Baird.

Mark Altschwager

Maybe just one more on the shape of the year for the guide, backing into Q4. I think the revenue trends imply pretty similar, but you are baking in less margin pressure. Could you just help bridge that for us? I know you said you expect the promotion piece to get a little bit better, but what are the other factors we should be considering there like with the cost actions that you outlined and other factors? And then I have a follow-up.

Meghan Frank

Yes. Thanks, Mark. Yes. So for Q4, we're expecting around 250 basis points in operating margin pressure. So it is moderated from Q3. We are expecting to see gross margin slightly ahead of last year, and that's really driven by, first of all, we have a higher water line from a revenue perspective in Q4, so less fixed cost deleverage. We also have a tariff benefit, so more of our mitigation actions come into play as we move throughout this year. So we're seeing an accelerating benefit there and essentially flat markdowns and where we've got some pressure in Q2 and Q3. And then from an expense perspective, we will still have deleverage, but it will be much less, I would say, than the Q3.

Mark Altschwager

Okay. And then on tariffs, the Q says you paid about $230 million in IEEPA tariffs. You've received $135 million back. I guess, what's the process and the realistic timing on the remainder? And is there a reason you wouldn't ultimately receive the rest of back?

Meghan Frank

Yes. So we did receive $134 million back in Q2. We have not reflected the remaining $105 million in our forward guidance. There remains some uncertainty in the process that we are actively participating.

Operator

That's all the time we have for questions today. Thank you for joining today's call, and have a nice day.