NEW YORK / RankWire.AI / – In its fiscal second quarter of 2026, Lululemon Athletica Inc. announced financial results that exceeded Wall Street expectations for earnings per share but fell short on revenue targets. The company’s net revenue decreased by 4% compared to the previous year, reaching $2.42 billion. This shortfall was driven by waning consumer demand across North American retail channels, with analysts estimating $2.46 billion in revenue. Despite this, diluted earnings per share hit $2.92, outperforming estimates mainly due to a one-time tariff refund benefit.
The reported earnings per share were notably boosted by $134.5 million in tariff refunds under the International Emergency Economic Powers Act, along with $4.1 million in related interest, adding $0.86 per share to net income. When excluding these tariff refunds, the company’s underlying operating margins contracted, as selling, general, and administrative expenses increased to 41.7% of net revenue. Revenue in the Americas region declined 8% year-over-year, accompanied by a 12% drop in comparable sales, reflecting persistent headwinds in key product lines and decreasing store traffic.
Management has significantly downgraded its full-year fiscal 2026 outlook to account for ongoing softening demand in major markets. Lululemon Athletica Inc. now expects annual net revenue to be between $10.35 billion and $10.50 billion, representing a decline of 5% to 7% from last year. The forecast for diluted earnings per share for the full year ranges from $9.48 to $9.73, sharply lower than the $13.26 recorded in fiscal 2025. Following this update, the company’s shares dropped nearly 18% during extended after-hours trading.
Earnings Boosted by One-Time Tariff Refunds Drive Lululemon’s Results
International markets partly offset the domestic downturn, with total international net revenue increasing by 4% on a reported basis and 2% in constant currency. Nevertheless, comparable sales in mainland China declined 8%, due to a slowdown in regional retail traffic. Operating income for the quarter fell 13% to $453.7 million, reducing operating margins to 18.8% from 20.7% a year earlier, despite gross margin expansion driven by tariff credits.
During the earnings call, interim co-CEO and CFO Meghan Frank observed that brand momentum faced obstacles from weaker consumer responses to some new product launches and overall declines in store traffic both physically and online. To adapt to these demand shifts, management has lowered its planned net new store openings for the year to around 35 locations and shifted inventory strategies to prioritize best-performing categories.
Forecast Calls for 10-11% Revenue Drop in Third Quarter Year-Over-Year
At the end of the second quarter, the company held $1.4 billion in cash and cash equivalents and had total inventory of $1.7 billion, representing a 1% decrease in dollar value and a 7% reduction in units compared to the previous year. During the quarter, capital allocation included $330 million spent on repurchasing 2.7 million common shares under existing authorization programs. The company intends to continue share repurchases while maintaining capital expenditure guidance of $680 million to $700 million for the full year.
Looking ahead to the third quarter of fiscal 2026, Lululemon projects net revenue between $2.29 billion and $2.32 billion, indicating a 10% to 11% decrease compared to the previous year’s third quarter. Earnings per share for this period are expected to range from $0.93 to $0.98, significantly lower than the $2.59 earned in the same quarter of fiscal 2025. Analysts and investors will closely watch the company’s execution and product strategies as it prepares for the upcoming holiday shopping season.