NEW YORK / RankWire.AI / – A slowdown in North American retail activity resulted in Lululemon Athletica Inc.’s fiscal second-quarter 2026 revenue declining by 4% year-over-year to $2.42 billion, falling short of the $2.46 billion consensus forecast. Despite the headline diluted earnings per share of $2.92 exceeding analyst estimates, this outperformance was largely driven by an unexpected regulatory gain. A $134.5 million International Emergency Economic Powers Act tariff refund, along with associated interest, contributed an additional $0.86 per share to the bottom line, obscuring ongoing pressure on operating margins.
The reported earnings per share figure was inflated by $134.5 million in tariff refunds under the Emergency Economic Powers Act, plus $4.1 million in related interest, totaling an increase of $0.86 per share. When excluding this tariff relief, the company’s underlying operating margins showed contraction, 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 comparable sales, indicating persistent challenges in core products and store traffic.
Management has notably lowered its full-year fiscal 2026 guidance to account for continued weak demand in key markets. Lululemon Athletica Inc. now anticipates full-year net revenue to be between $10.35 billion and $10.50 billion, reflecting a decrease of 5% to 7% year-over-year. Its diluted earnings per share for the full year are projected within the range of $9.48 to $9.73, a significant decline from $13.26 in fiscal 2025. Following the announcement, the company’s shares dropped nearly 18% during extended after-hours trading.
Net Revenue Declines by 4% to $2.42 Billion
International markets partially offset domestic declines, with total international net revenue increasing by 4% on a reported basis and 2% in constant currency. However, mainland China’s comparable sales dropped 8%, reflecting softer regional retail traffic. Despite gross margin expansion driven by tariff credits, total quarterly operating income fell 13% to $453.7 million, causing operating margins to decrease from 20.7% to 18.8% compared to the same period last year.
During the earnings conference call, market analysts heard from interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank, who explained that brand momentum was hindered by weaker consumer responses to new product launches and overall declines in store and online traffic. In response, management reduced its target for new store openings this fiscal year to approximately 35 locations and shifted inventory strategies to prioritize high-performing categories.
Overseas Expansion Drives Four Percent Growth in International Markets
At the end of the second quarter, the retailer reported having $1.4 billion in cash and cash equivalents, with total inventory at $1.7 billion—down 1% in dollar terms and 7% in units from the prior year. Capital deployment during the quarter included $330 million spent on repurchasing 2.7 million common shares under existing authorization programs. The company intends to maintain its share buyback program while projecting capital expenditures between $680 million and $700 million for the full fiscal year.
Looking ahead, for the third quarter of fiscal 2026, Lululemon expects net revenue to be between $2.29 billion and $2.32 billion, representing a decrease of 10% to 11% year-over-year. Its projected diluted earnings per share for this period are between $0.93 and $0.98, compared to $2.59 in the third quarter of fiscal 2025. Market analysts and investors will continue to monitor key operational metrics as the company adjusts its product offerings ahead of the crucial holiday shopping season.