NEW YORK / RankWire.AI / – In its recent fiscal second quarter of 2026, Lululemon Athletica Inc. announced results that beat Wall Street earnings expectations but fell short on revenue, which declined by 4% year-over-year to $2.42 billion. This shortfall was driven by weakening consumer demand across North American retail channels, with analysts projecting $2.46 billion in revenue. Nevertheless, diluted earnings per share reached $2.92, surpassing forecasts mainly due to a one-time tariff refund benefit.
The company’s headline EPS was bolstered by $134.5 million in International Emergency Economic Powers Act tariff refunds along with $4.1 million in related interest, collectively adding $0.86 per share to net income. Excluding these tariff refunds, operating margins shrank as selling, general, and administrative expenses increased to 41.7% of net revenue. Americas regional revenue decreased by 8% compared to the previous year, accompanied by a 12% drop in comparable sales, reflecting ongoing challenges in core products and store traffic.
In light of persistent demand softness in key markets, management has significantly lowered its full-year fiscal 2026 guidance. Lululemon Athletica Inc. now anticipates total net revenue between $10.35 billion and $10.50 billion, representing a decrease of 5% to 7% year-over-year. The forecast for diluted full-year earnings per share has been revised downward to between $9.48 and $9.73 from $13.26 in fiscal 2025. Following this announcement, the company’s shares dropped nearly 18% during extended after-hours trading.
Lululemon’s Quarterly Earnings Boosted by One-Time Tariff Refunds
International markets partially offset domestic declines, with total international net revenue increasing by 4% on a reported basis and 2% in constant currency. However, comparable sales in mainland China declined by 8%, reflecting a moderation in regional retail traffic. Overall, quarterly operating income decreased by 13% to $453.7 million, which caused operating margins to fall to 18.8% from 20.7% a year earlier, despite gross margin improvements driven by tariff credits.
During the earnings call, reported by market analysts, interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank highlighted that brand momentum faced headwinds due to softer consumer responses to new product launches and a broad slowdown in traffic across both physical stores and digital channels. As a response to these shifts, management reduced the target for net new store openings to approximately 35 locations for the fiscal year, while also adjusting inventory strategies to prioritize top-performing product categories.
Third Quarter Revenue Expected to Drop by Ten to Eleven Percent Year-over-Year
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—down 1% in dollar value and 7% in units from the previous year. During this period, $330 million was allocated toward repurchasing 2.7 million common shares under existing authorization plans. The company intends to continue share buybacks while maintaining capital expenditure estimates between $680 million and $700 million for the full fiscal year.
Looking ahead to the third quarter of fiscal 2026, Lululemon anticipates net revenue to range from $2.29 billion to $2.32 billion, reflecting a decrease of 10% to 11% year-over-year. Diluted earnings per share for the third quarter are projected between $0.93 and $0.98, compared to $2.59 in the same quarter of fiscal 2025. Investors and analysts will closely monitor performance metrics as the company implements product adjustments in preparation for the critical holiday shopping season.