Garmin Q3 2026: watches lifted sales 12% and operating income 34%, helped by $33M of tariff refunds

Garmin's third quarter (13 weeks ended September 26, 2026) set records for revenue and operating income. Sales rose 12% to $1.99 billion, while operating income, the profit left after running the business but before interest and tax, jumped 34% to $611.6 million. Four of the five segments grew, led by outdoor (+20%, on the new fēnix 9 adventure watches) and fitness and marine (+16% each). Auto OEM, which sells electronics to carmakers, fell 20%. Part of the profit jump came from one-offs: about $33 million of tariff refunds and a lower tax rate. Without them, earnings still grew more than twice as fast as sales.

Results

Gross margin is the share of sales left after the cost of making the products. Pro forma EPS is Garmin's adjusted figure. It leaves out foreign-currency gains and losses, and discrete tax items (there were none in 2026 or 2025).

Segments: watches drove the quarter

• Fitness grew on "strong demand for wearables," according to the 10-Q. It is now Garmin's biggest segment, at 35% of sales. Gross margin rose 2.2 points, which the filing attributes to "lower product costs."
• Outdoor reversed course. It was the only segment to shrink in Q2. This quarter it grew 20%, "driven primarily by growth in adventure watches," and the fēnix 9 and fēnix 9 Pro launched during the quarter. Operating income rose 37%, to $233.0M, making outdoor the most profitable segment in dollars this quarter.
• Marine profit nearly doubled (+90%), but much of that was a one-off. Its gross margin rose 8.5 points, which the 10-Q says was "primarily attributable to refunds of previously paid tariffs." About $20M of the $33M in refunds went to marine. Without them, marine operating income would be about $74M, still up about 50% on sales growth led by sonar.
• Aviation grew 5% on OEM product sales, meaning equipment sold to aircraft makers.
• Auto OEM fell 20% because of "a decline in domain controllers," the in-car computers Garmin supplies to automakers. The segment still lost money, but its loss narrowed to $11.9M from $16.7M.

By region, the Americas grew 15%, EMEA 12% and Asia-Pacific only 4%.

Takeaway: This is a quarter where demand for Garmin's watches, not cost cuts, did most of the work. Operating expenses grew 10%, a bit slower than sales, and after the tariff refund is removed, gross margin still rose about 2.6 points on mix and lower product costs. Fitness and outdoor together produced $464M of the $612M operating income. The risk to the model is cost, not demand: Garmin now says memory-chip shortages will hurt future gross margin.

What the headline numbers hide

• Tariff refunds are a one-off. In February 2026 the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were unauthorized. Garmin books refunds of tariffs it already paid as lower cost of goods sold. In Q3 they came to about $33M, adding 1.6 points of gross margin (the 10-Q's own figure). Year to date they total about $54M, and the 10-Q says more potential refunds have not been recognized yet. Without the $33M, operating income would have grown about 27% instead of 34%.
• A lower tax rate added several points of EPS growth. The effective tax rate fell to 18.1% from 21.2% because of "an increase in expected U.S. deductions" under 2025 U.S. tax legislation that took effect in 2026. That should last through 2026, so it isn't strictly a one-off, but it isn't operating improvement either. At last year's rate, Q3 net income would have been about $20M (about $0.10 a share) lower.
• Currency worked the other way. Foreign-currency gains fell to $9.8M from $20.3M. That is why pro forma EPS, which strips currency out, grew faster (+39%) than GAAP EPS (+35%).
• Our estimate of underlying growth. Start with pro forma EPS of $2.76. Remove the tariff refund (about $0.14 a share after tax) and the tax-rate benefit (about $0.10). That leaves roughly $2.52, up about 27% from $1.99. This is our arithmetic from the filing's figures, not a number Garmin reports.
• Cash lagged profit this quarter. Operating cash flow was $394M against $542M of net income, and free cash flow (operating cash flow minus capital spending) fell 31% to $293M. Two things explain most of the gap. Inventory has grown to $2.25B from $1.77B at year-end (+27%, while year-to-date sales grew 13%), with raw materials up 42% to $878M. Other current assets also rose $266M. The 10-Q says cash went to "prepayments for inventory to secure certain critical components." Capital spending is also up, at $295M year to date versus $146M. Over the first nine months, cash conversion is still reasonable: operating cash flow was $1.33B against $1.49B of net income (90%).
• Buybacks played no part in EPS growth. Diluted shares were essentially flat at 193.6 million (+0.04%). Garmin repurchased $41M of stock and paid $202M in dividends in the quarter, so the per-share growth came from the business.

On balance the quarter is flattered: GAAP EPS rose 35%, but without the one-off tariff refund, the tax-law benefit and currency gains, underlying EPS growth was closer to 27%, which is still strong.

Did last time's read hold up?

Our Q2 2026 report noted that July's guidance implied a second-half gross margin of about 58.5% and an operating margin of about 26.4%, down from 61.0% and 27.7% in the first half. That caution was wrong for Q3. Gross margin came in at 63.3% and operating margin at 30.8%, both higher than any first-half quarter. Even without the $33M tariff refund, gross margin was about 61.7%. The memory-chip warning we flagged has also hardened. In Q2 the 10-Q said those costs "may" hurt gross margin. This filing says Garmin "expect[s]" them to.

Guidance and outlook

Garmin raised its fiscal 2026 guidance again. It now expects revenue of about $8.15 billion and pro forma EPS of $10.80, up from $8.05B and $10.00 in July. The outlook assumes a 61.0% gross margin, a 29.0% operating margin and a 16.5% tax rate (previously 59.7%, 27.0% and 16.5%).

What that implies for Q4: revenue of $8.15B minus the $5.76B already booked leaves about $2.39B. On the full-year margins, Q4 works out to roughly a 59.0% gross margin and a 29.5% operating margin. That is below Q3's 63.3% and 30.8%, even though Q4 includes the holiday season. Garmin's plan therefore assumes no further tariff refunds and higher memory-chip costs.

Things to watch in Q4: whether fitness and outdoor keep growing in the double digits over the holidays; how much gross margin memory-chip costs actually take away (Garmin has $2.0B of inventory purchase commitments, $1.77B due within 12 months); whether more IEEPA refunds are recognized, which would lift margin above the guided level; and whether Auto OEM stops shrinking. Our view: the demand trend in watches is the strongest part of the story, and the guidance looks cautious on margins. Next year, though, has two headwinds Q3 didn't: no tariff refunds to lean on, and memory costs that the company itself now expects to bite.