NEW YORK / RankWire.AI / – Lululemon Athletica Inc. reported a 4% year-over-year decline in fiscal second-quarter 2026 net revenue to $2.42 billion, falling short of the consensus estimate of $2.46 billion, amid weakening retail demand across North America. Despite this, the company’s diluted earnings per share of $2.92 exceeded market forecasts, largely driven by an unexpected regulatory windfall. A $134.5 million International Emergency Economic Powers Act tariff refund along with accrued interest contributed an extra $0.86 per share, concealing underlying pressures on operating margins.
This earnings boost was primarily due to a $134.5 million International Emergency Economic Powers Act tariff reimbursement and $4.1 million in interest, which together added $0.86 per share to net income. When excluding this tariff relief, core operating margins declined as selling, general, and administrative expenses increased to 41.7% of net revenue. The Americas region saw an 8% year-over-year drop in revenue, accompanied by a 12% decrease in comparable sales, reflecting persistent challenges in key product categories and declining store traffic.
In light of ongoing demand softness in primary markets, management has significantly cut its full-year fiscal 2026 guidance. Lululemon Athletica Inc. now anticipates annual net revenue between $10.35 billion and $10.50 billion, which indicates a decline of 5% to 7% compared to the previous year. The firm projects diluted earnings per share for the full year to be between $9.48 and $9.73, sharply lower than the $13.26 reported in fiscal 2025. Following the announcement, the company’s stock dropped nearly 18% during extended after-hours trading.
Net Revenue Dips by 4% to $2.42 Billion
International markets contributed partially to offset domestic declines, 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%, indicating softer regional retail traffic. Overall quarterly operating income decreased by 13% to $453.7 million, causing operating margins to fall from 20.7% to 18.8%, despite gross margin expansion fueled by the tariff credits.
During the earnings call, interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank highlighted that brand momentum faced headwinds from weaker consumer responses to new product launches and a general decline in store traffic across both physical and digital platforms. In response to changing demand trends, management reduced its net new store opening target for the year to around 35 locations and shifted inventory strategies to focus on top-performing categories.
Overseas Expansion Spurs 4% Increase in International Revenue
By the end of the second quarter, the retailer held $1.4 billion in cash and cash equivalents, with total inventory totaling $1.7 billion, down 1% in dollar value and 7% in units compared to the same period last year. The company’s capital deployment included $330 million spent on repurchasing 2.7 million common shares under existing programs. Looking ahead, Lululemon plans to continue executing its share buyback program while maintaining capital expenditure guidance of $680 million to $700 million for the full fiscal year.
For the third quarter of fiscal 2026, the company forecasts net revenue between $2.29 billion and $2.32 billion, representing a 10% to 11% decrease 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 last year. Investors and analysts will closely monitor the company’s performance and strategic adjustments as it prepares for the upcoming holiday shopping season.