lululemon’s second-quarter EBIT exceeded expectations, while its full-year EPS and revenue outlooks were significantly revised. Attention is focused on the company’s performance trends in the next fiscal year.
lululemon’s second-quarter revenue was reported to have fallen 4% year on year to $2.42B, reflecting a decline in store traffic and the impact of foreign exchange. Operating income reached $454M, including the impact of a $134.5M tariff refund. GAAP EPS was $2.92, while adjusted EPS fell 34% year on year to $2.06.
At the earnings call, the decline in store traffic was identified as the biggest factor, with market conditions said to have deteriorated in North America and China. In China, revenue was described as having increased on a reported basis but declined after excluding foreign exchange effects. In North America, the sales mix shift and inventory movements had an impact.
The full-year revenue forecast was revised down to $10.35–10.50B, while the EPS forecast was cut from $13.26 to $9.48–9.73. The third-quarter EPS forecast was also lowered to $0.93–0.98, with margin pressure and the impact of fixed costs expected to continue.
Free cash flow increased 49% year on year to $230M, supported by lower capital spending and inventory reductions. Financial flexibility remained intact, backed by $1.4B in cash and $713M of remaining share repurchase authorization.