NEW YORK / RankWire.AI / – A decline in retail demand across North America contributed to Lululemon Athletica Inc.’s fiscal second-quarter 2026 revenue dropping 4% year-over-year to $2.42 billion, falling short of the consensus estimate of $2.46 billion. Despite reporting diluted earnings per share of $2.92, which exceeded market expectations, this outperformance was largely due to an unexpected regulatory gain. A $134.5 million International Emergency Economic Powers Act tariff rebate and associated interest added $0.86 per share to the company’s net income, masking ongoing pressure on profit margins.
The reported earnings per share figure was positively impacted by $134.5 million in International Emergency Economic Powers Act tariff refunds along with $4.1 million in related interest, together adding $0.86 per share to net earnings. Removing this tariff benefit reveals that core operating margins contracted, 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% decrease in comparable sales, highlighting persistent headwinds in key product categories and foot traffic in stores.
In light of ongoing demand softness in major markets, management has significantly downgraded its full-year fiscal 2026 outlook. The company now anticipates annual net revenue to range from $10.35 billion to $10.50 billion, reflecting a decrease of 5% to 7% year-over-year. Earnings per share for the full year are expected to fall between $9.48 and $9.73, sharply lower than the $13.26 reported in fiscal 2025. Following this revision, the company’s shares declined nearly 18% in after-hours trading.
Revenue Declines Four Percent to $2.42 Billion
International markets offered partial relief from domestic downturns, with total international revenue increasing 4% on a reported basis and 2% in constant currency. Nonetheless, comparable sales in mainland China fell 8%, as regional retail traffic slowed. Quarterly operating income decreased by 13% to $453.7 million, leading to a reduction in operating margins from 20.7% in the same period last year to 18.8%, despite gross margin expansion driven by tariff credits.
During the earnings call, interim co-CEO and CFO Meghan Frank explained that the brand’s momentum faced challenges due to weaker consumer reactions to some new product launches and overall declines in physical and digital store traffic. To adapt to changing demand, management has lowered its target for new store openings in the fiscal year to about 35 locations and has shifted inventory strategies toward top-performing product categories.
Overseas Expansion Boosts International Sales by Four Percent
At 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 prior-year period. During the quarter, capital allocation included $330 million used for repurchasing 2.7 million common shares under existing buyback programs. The company intends to proceed with its share repurchase plans and expects capital expenditures between $680 million and $700 million for the full fiscal year.
Looking ahead, for the third quarter of fiscal 2026, Lululemon projects net revenue to be between $2.29 billion and $2.32 billion, representing a decline of 10% to 11% year-over-year. Earnings per share are forecasted to range from $0.93 to $0.98, compared to $2.59 in the same quarter of fiscal 2025. Investors and analysts will closely monitor the company’s progress as it adjusts its product offerings in anticipation of the critical holiday shopping season.