NEW YORK / RankWire.AI / – Lululemon Athletica Inc.’s fiscal second-quarter 2026 revenue declined 4% year-over-year to $2.42 billion, falling short of the $2.46 billion consensus estimate, amid weakening retail demand across North America. Despite this, the company’s headline diluted earnings per share of $2.92 exceeded analyst forecasts, primarily due to an unexpected regulatory windfall. A $134.5 million International Emergency Economic Powers Act tariff refund, along with related interest, contributed an additional $0.86 per share to net income, obscuring underlying pressure on operating profit margins.
The reported earnings per share figure was buoyed by the inclusion of a $134.5 million tariff refund under the International Emergency Economic Powers Act, plus $4.1 million in accrued interest, together adding $0.86 per share. When excluding this tariff relief, operating margins showed signs of pressure, with selling, general, and administrative expenses rising to 41.7% of net revenue. Revenue in the Americas declined 8% year-over-year, with comparable sales falling 12%, highlighting ongoing challenges in core product categories and store traffic.
Management has notably downgraded its full-year fiscal 2026 outlook to account for continued weak demand in key regions. The company now anticipates full-year net revenue between $10.35 billion and $10.50 billion, representing a drop of 5% to 7% compared to the previous year. Diluted earnings per share for the full year are projected to be between $9.48 and $9.73, down sharply from $13.26 in fiscal 2025. Following the announcement, Lululemon’s shares fell nearly 18% during after-hours trading.
Q2 Revenue Declines 4%, Reaching $2.42 Billion
International markets offered some offset to North American declines, with global international revenue increasing 4% on a reported basis and 2% in constant currency. Nevertheless, comparable sales in mainland China fell 8%, as regional retail traffic slowed. Total operating income for the quarter shrank 13% to $453.7 million, bringing operating margins down to 18.8% from 20.7% a year earlier, despite gross margin improvements driven by tariff credits.
During the earnings call, interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank pointed out that brand momentum faced headwinds from softer consumer reactions to new product launches and an overall decline in store and online traffic. As a response, management has cut its net new store openings for the year to approximately 35 locations and shifted inventory strategies to prioritize best-performing categories.
Overseas Expansion Fuels 4% Growth in International Markets
Lululemon ended the second quarter with $1.4 billion in cash and cash equivalents, alongside total inventory of $1.7 billion, reflecting a 1% decrease in dollar value and a 7% reduction in unit volume compared to the same period last year. Capital deployment included $330 million spent on repurchasing 2.7 million common shares under existing buyback programs. The company plans to maintain its share repurchase program while projecting capital expenditures between $680 million and $700 million for the full fiscal year.
Looking ahead to the third quarter of fiscal 2026, Lululemon anticipates net revenue between $2.29 billion and $2.32 billion, a decline of 10% to 11% compared to the same period in the previous year. Earnings per share for the quarter are estimated to be between $0.93 and $0.98, compared to $2.59 in Q3 of fiscal 2025. Analysts and investors will continue to monitor key performance metrics as the company adjusts its product lineup ahead of the busy holiday shopping season.