NEW YORK / RankWire.AI / – Lululemon Athletica Inc.’s fiscal second quarter of 2026 saw a 4% year-over-year decline in net revenue to $2.42 billion, missing the consensus estimate of $2.46 billion, amid weakening retail demand in North America. Despite this, the company reported diluted earnings per share of $2.92, exceeding market forecasts, largely thanks to an unexpected regulatory windfall. A tariff refund of $134.5 million under the International Emergency Economic Powers Act, along with related interest, contributed an additional $0.86 per share to earnings, concealing ongoing pressure on operating margins.
This positive impact on earnings per share stemmed from a $134.5 million tariff reimbursement under the International Emergency Economic Powers Act, plus $4.1 million in associated interest, which collectively added $0.86 per share to net income. Removing the tariff relief, underlying operating margins shrank as selling, general, and administrative expenses rose to 41.7% of net revenue. Revenue in the Americas dropped 8% year-over-year, accompanied by a 12% decline in comparable sales, reflecting persistent headwinds in key product categories and store traffic.
In response to these challenges, management has significantly lowered its full-year fiscal 2026 outlook to account for ongoing weak demand in key markets. Lululemon Athletica Inc. now anticipates full-year net revenue to fall between $10.35 billion and $10.50 billion, representing a decrease of 5% to 7% compared to the previous year. The company projects diluted earnings per share for the full year to be between $9.48 and $9.73, a steep drop from $13.26 in fiscal 2025. Following this forecast update, shares declined nearly 18% in after-hours trading.
Net Revenue Declines 4% to $2.42 Billion
International markets helped partially offset domestic setbacks, with total international net revenue rising 4% on a reported basis and 2% in constant currency. Nonetheless, comparable sales in mainland China fell 8%, reflecting softer regional retail traffic. Overall quarterly operating income declined 13% to $453.7 million, leading to an operating margin of 18.8%, down from 20.7% a year earlier, even as gross margin expanded due to tariff credits.
During the earnings call, interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank explained that brand momentum faced headwinds from less favorable consumer responses to new product launches and a broad slowdown in traffic across both physical stores and digital channels. To adapt to shifting demand, management reduced its target for new store openings in the current fiscal year to approximately 35 locations and adjusted inventory strategies to prioritize top-performing categories.
Overseas Expansion Drives 4% Growth in International Revenues
At the end of the second quarter, the retailer held $1.4 billion in cash and cash equivalents, with total inventory at $1.7 billion, reflecting a 1% decrease in dollar value and a 7% reduction in units compared to the same period last year. During the quarter, capital allocations included $330 million spent on repurchasing 2.7 million common shares under existing buyback programs. The company plans to continue executing share repurchases while maintaining capital expenditure estimates between $680 million and $700 million for the full fiscal year.
Looking ahead, for the third quarter of fiscal 2026, Lululemon projects net revenue will range from $2.29 billion to $2.32 billion, representing a decline of 10% to 11% year-over-year. Diluted earnings per share are expected to be between $0.93 and $0.98, compared to $2.59 in the same quarter of fiscal 2025. Investors and analysts will closely monitor execution and product strategies as the company prepares for the upcoming holiday shopping season.
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