Lululemon Athletica Inc. reported second-quarter results that included a deceptively positive gross margin figure, according to a recent analysis. While the company reported a gross margin increase of 200 basis points to 60.5%, the source notes that this improvement was largely driven by $134.5 million in tariff refunds, which added 560 basis points to the margin. Excluding this refund, the company’s gross margin was 54.9%. Additionally, operating margin fell 190 basis points to 18.8%.

The filing highlights that Lululemon faced weaker demand and heavier markdowns, with comparable sales dropping 9%. Sales of the company’s signature leggings fell by approximately 20%. These factors, combined with elevated costs and heavy competition, are cited as reflecting a broader challenge facing apparel retailers.

Inventory metrics showed some progress, with inventory dollars declining 1% year over year and units falling 7%. However, the company expects inventory dollars to rise in the low-single-digit range in the third quarter.

The article identifies specific ETFs with exposure to Lululemon and the broader retail sector. The First Trust Consumer Discretionary AlphaDEX Fund (NYSE: FXD) holds Lululemon as a significant holding, representing a roughly 18% weight. The SPDR S&P Retail ETF (NYSE: XRT) also offers exposure, with apparel retail accounting for 19.45% of its portfolio. The VanEck Retail ETF (NASDAQ: RTH) has a smaller weighting for Lululemon, but the article suggests it could serve as a gauge for broader consumer health.

The analysis points out that other retailers, including Under Armour Inc. (NYSE: UAA) and Helen of Troy Ltd. (NASDAQ: HELE), are cutting product assortments to manage costs. Meanwhile, companies like Walmart Inc. (NASDAQ: WMT) and Target Corp. (NYSE: TGT) are utilizing billions in tariff refunds to lower prices. The article concludes by questioning whether retailers can preserve margins as consumers become less willing to pay premium prices, noting that the answer could impact the performance of retail ETFs more than the individual stock performance of Lululemon.