NEW YORK / RankWire.AI / – In a challenging retail environment, Lululemon Athletica Inc. reported a decline in its fiscal second-quarter 2026 net revenue, which fell 4% year-over-year to $2.42 billion, thus missing the consensus estimate of $2.46 billion. Despite this, the company’s headline diluted earnings per share of $2.92 exceeded analyst forecasts, largely due to an unexpected regulatory windfall. A $134.5 million International Emergency Economic Powers Act tariff refund, along with interest, contributed an additional $0.86 per share to the bottom line, obscuring underlying pressures on profit margins.
This boost to the earnings figure was driven by a tariff reimbursement under the International Emergency Economic Powers Act, along with $4.1 million in related interest, which collectively added $0.86 to the earnings per share. When excluding these tariff refunds, operating margins showed signs of contraction, as selling, general, and administrative expenses increased to 41.7% of net revenue. Revenue in the Americas region declined 8% compared to the previous year, with a 12% drop in comparable sales, indicating persistent headwinds in core product lines and decreasing store traffic.
As a result of ongoing demand softness in key markets, management has sharply lowered its full-year fiscal 2026 outlook. Lululemon Athletica Inc. now anticipates total net revenue for the year to be between $10.35 billion and $10.50 billion, representing a decline of 5% to 7% from the previous year. The projected full-year diluted earnings per share are in the range of $9.48 to $9.73, a significant decrease from the $13.26 achieved in fiscal 2025. Following this update, shares of the company dropped nearly 18% during extended after-hours trading.
Net Revenue Declines by 4%, Reaching $2.42 Billion
International markets partially offset domestic setbacks, with total international net revenue increasing by 4% on a reported basis and 2% when measured in constant currency. Nonetheless, comparable sales in mainland China fell 8%, as regional retail traffic slowed. Total operating income for the quarter decreased 13% to $453.7 million, leading to a drop in operating margins to 18.8% from 20.7% in the same period last year, despite gross margin expansion driven by the tariff credits.
During the earnings call, which was analyzed by market experts, interim co-CEO and CFO Meghan Frank highlighted that brand momentum faced challenges from softer consumer responses to new product launches and overall traffic declines across both physical stores and digital channels. To adapt to these changing demand patterns, management has reduced its store opening target for the fiscal year to about 35 locations and revised inventory strategies to prioritize top-performing categories.
Overseas Expansion Drives 4% Growth in International Markets
At the close of the second quarter, the company held $1.4 billion in cash and cash equivalents, with total inventory reaching $1.7 billion—down 1% in dollar terms and 7% in units compared to the same period last year. Capital deployment during the quarter included $330 million spent on repurchasing 2.7 million common shares under existing authorization plans. The firm intends to continue executing its share repurchase program while maintaining capital expenditure estimates of $680 million to $700 million for the full fiscal year.
Looking ahead to the third quarter of fiscal 2026, Lululemon expects net revenue to be between $2.29 billion and $2.32 billion, reflecting a decline of 10% to 11% year-over-year. The company projects diluted earnings per share for this period to be between $0.93 and $0.98, compared to $2.59 in the same quarter of fiscal 2025. Industry analysts and investors will closely watch the company’s execution and product strategies as it prepares for the upcoming holiday shopping season.
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