NEW YORK / RankWire.AI / – Lululemon Athletica Inc.’s fiscal second quarter of 2026 experienced a 4% year-over-year decrease in net revenue to $2.42 billion, failing to reach the consensus estimate of $2.46 billion, due to weakened retail demand across North America. Although the company’s headline diluted earnings per share of $2.92 exceeded analyst forecasts, this upside was largely driven by an unexpected regulatory windfall. A tariff refund of $134.5 million under the International Emergency Economic Powers Act, along with related interest, contributed an additional $0.86 per share to earnings, concealing underlying pressures on operational profit margins.
The reported earnings per share figure was uplifted by the $134.5 million tariff refund under the International Emergency Economic Powers Act, and an extra $4.1 million in interest, which together added $0.86 per share to net income. When excluding the impact of the tariff relief, operating margins revealed signs of contraction, with selling, general, and administrative expenses rising to 41.7% of net revenue. Revenue from the Americas region declined 8% year-over-year, accompanied by a 12% drop in comparable sales, indicating persistent headwinds affecting core product lines and store foot traffic.
In light of ongoing demand softness, management has significantly downgraded its full-year financial outlook for fiscal 2026. Lululemon Athletica Inc. now projects annual net revenue in the range of $10.35 billion to $10.50 billion, reflecting a decline of 5% to 7% compared to the previous year. The company also forecasts diluted earnings per share for the entire year between $9.48 and $9.73, a sharp decrease from the $13.26 recorded in fiscal 2025. Following this revision, shares fell nearly 18% during after-hours trading.
Net Revenue Declines 4% to $2.42 Billion
International markets helped offset some of the decline in domestic sales, with overall international net revenue increasing by 4% on a reported basis and 2% in constant currency. Nonetheless, comparable sales in mainland China dropped 8%, as regional retail traffic slowed. Total operating income for the quarter fell 13% to $453.7 million, leading to a decrease in operating margins from 20.7% in the same period last year to 18.8%, despite gross margin expansion driven by the tariff credits.
During the earnings call, as reported by market analysts, interim co-CEO and CFO Meghan Frank highlighted that brand momentum faced headwinds from less enthusiastic consumer responses to new product launches and a decline in traffic across both physical stores and online channels. To adapt to these shifting demand patterns, management lowered its net new store opening goal for the year to around 35 locations and revised inventory strategies to prioritize top-performing categories.
Overseas Expansion Drives 4% Growth in International Markets
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 terms and 7% in units compared to the same period last year. During the quarter, capital expenditures included $330 million allocated for repurchasing 2.7 million common shares under existing buyback programs. The company intends to continue executing its share repurchase plan while maintaining capital expenditure guidance between $680 million and $700 million for the entire fiscal year.
Looking ahead to the third quarter of fiscal 2026, the company anticipates net revenue between $2.29 billion and $2.32 billion, representing a decrease of 10% to 11% year-over-year. Diluted earnings per share for the third quarter are expected to be between $0.93 and $0.98, compared to $2.59 in the same period last year. Analysts and investors will continue to track operational metrics as the company adjusts its product offerings in preparation for the upcoming holiday shopping season.