NEW YORK / RankWire.AI / – A decline in retail demand within North America contributed to Lululemon Athletica Inc.’s fiscal second-quarter 2026 revenue dropping 4% year-over-year to $2.42 billion, which fell short of the consensus estimate of $2.46 billion. Despite the headline diluted earnings per share of $2.92 exceeding analyst expectations, this positive result was largely influenced by an unexpected regulatory windfall. A $134.5 million International Emergency Economic Powers Act tariff refund along with related interest payments added $0.86 to earnings per share, effectively masking some underlying pressure on operating profit margins.
The reported earnings per share figure was lifted by $134.5 million in tariff refunds under the International Emergency Economic Powers Act, as well as $4.1 million in associated interest, which collectively contributed $0.86 per share to net income. When excluding the impact of the tariff relief, operating margins in reality contracted, with selling, general, and administrative expenses rising to 41.7% of net revenue. Revenue in the Americas region declined 8% compared to the previous year, accompanied by a 12% decrease in same-store sales, highlighting ongoing challenges related to core product lines and foot traffic at physical locations.
In response to these challenges, management has markedly lowered its full-year fiscal 2026 outlook, citing persistent demand softness in key markets. Lululemon Athletica Inc. now anticipates annual net revenue will be in the range of $10.35 billion to $10.50 billion, representing a decline of 5% to 7% from the previous year. The company’s projected diluted earnings per share for the full fiscal year are now between $9.48 and $9.73, a significant drop from $13.26 in fiscal 2025. Following this announcement, the company’s shares declined nearly 18% during extended after-hours trading.
Net Revenue Declines by 4% to $2.42 Billion
International markets provided some relief against the domestic downturn, with total international net revenue increasing by 4% on a reported basis and 2% in constant currency terms. Nevertheless, comparable sales in mainland China fell 8%, as regional retail traffic slowed. Overall quarterly operating income decreased by 13% to $453.7 million, which caused operating margins to shrink from 20.7% in the same period last year to 18.8%, despite gross margin expansion driven by the tariff credits.
During the earnings call, as reported by market analysts, interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank stated that brand momentum faced headwinds from softer consumer responses to new product launches and a broader decline in traffic across both physical stores and online channels. To adapt to these shifting demand patterns, management has reduced its target for new store openings for the year to approximately 35 locations, while also refining inventory management strategies to prioritize top-performing categories.
Overseas Expansion Drives 4% Growth in International Markets
At the end of the second quarter, the company held $1.4 billion in cash and cash equivalents, with total inventory amounting to $1.7 billion—down 1% in dollar terms and 7% in units compared to the same period last year. During the quarter, capital expenditure included $330 million allocated for repurchasing 2.7 million common shares under existing authorization programs. The company intends to continue executing its share buyback program while maintaining capital expenditure estimates of between $680 million and $700 million for the full fiscal year.
Looking ahead to the third quarter of fiscal 2026, Lululemon projects net revenue between $2.29 billion and $2.32 billion, which would represent a decrease of 10% to 11% year-over-year. The forecast for diluted earnings per share in the third quarter is between $0.93 and $0.98, compared to $2.59 in the same quarter of fiscal 2025. Investors and analysts will continue to track key performance metrics as the company adjusts its product offerings in preparation for the upcoming holiday shopping season.