Lululemon's Margin Pressure Spells Trouble for Retail ETFs

Lululemon Athletica Inc.'s (NASDAQ:LULU) second-quarter earnings report may have shown a positive number, but it was largely driven by $134.5 million in tariff refunds that added 560 basis points to gross margin.

However, tariffs still had a negative impact on gross margin of 160 basis points, even after accounting for the refund.

Excluding the benefit of tariff refunds, Lululemon's gross margin was only 54.9%, and operating margin fell 190 basis points to 18.8%.

This is a problem not just for Lululemon, but also for other apparel retailers like Under Armour Inc (NYSE:UAA) and Helen of Troy Ltd. (NASDAQ:HELE), who are cutting product assortments to reduce import, transportation, and storage costs.

Even companies that have received tariff refunds, such as Nike Inc (NYSE:NKE) and Columbia Sportswear Co (NASDAQ:COLM), may struggle to preserve margins as consumers become less willing to pay premium prices.