NEW YORK / RankWire.AI / – A decline in North American retail demand contributed to Lululemon Athletica Inc.’s fiscal second-quarter 2026 net revenue decreasing by 4% year-over-year to $2.42 billion, falling short of the $2.46 billion consensus estimate. Although diluted earnings per share of $2.92 surpassed analyst expectations, this outperformance was largely due to an unexpected regulatory windfall. A $134.5 million International Emergency Economic Powers Act tariff refund along with accrued interest added $0.86 per share to the bottom line, obscuring ongoing pressure on operating margins.
This EPS boost stemmed from a $134.5 million International Emergency Economic Powers Act tariff rebate and $4.1 million in related interest, collectively contributing an additional $0.86 per share to net income. Removing the tariff recovery, core operating margins shrank as selling, general, and administrative expenses increased to 41.7% of revenue. Revenue in the Americas dropped 8% year-over-year, coupled with a 12% decrease in comparable sales, reflecting persistent headwinds in key products and store traffic.
Management sharply lowered its full-year fiscal 2026 outlook, citing ongoing demand softness in key regions. Lululemon Athletica Inc. now anticipates full-year net revenue between $10.35 billion and $10.50 billion, representing a decline of 5% to 7% compared to last year. The projected full-year diluted EPS now ranges from $9.48 to $9.73, a significant drop from $13.26 in fiscal 2025. Following the update, shares declined nearly 18% in after-hours trading.
Net Revenue Dips 4% to $2.42 Billion
International markets helped offset some US declines, with total international revenue increasing by 4% on reported basis and 2% in constant currency. Still, mainland China’s comparable sales declined 8% amid softer regional retail traffic. Overall quarterly operating income decreased 13% to $453.7 million, pushing operating margins down to 18.8% from 20.7% in the same period last year, despite gross margin expansion driven by tariff credits.
During the earnings call, interim co-CEO and CFO Meghan Frank highlighted that brand momentum faced obstacles from softer consumer responses to new product launches and declining traffic across physical and digital stores. In response, management revised its store opening goal for the year to about 35 locations and adjusted inventory strategies to prioritize best-performing categories.
Overseas Growth Buoys International Sales by 4 Percent in Second Quarter
The company finished the quarter with $1.4 billion in cash and equivalents, and total inventory of $1.7 billion, down 1% in dollar terms and 7% in units compared to last year. Capital expenditures included $330 million spent on repurchasing 2.7 million shares under existing programs. The firm plans to continue its share buyback while maintaining capital expenditure guidance of $680 million to $700 million for the full year.
Looking ahead to Q3 fiscal 2026, Lululemon expects net revenue between $2.29 billion and $2.32 billion, a decrease of 10% to 11% year-over-year. Diluted EPS for the quarter is forecasted to be $0.93 to $0.98, compared to $2.59 in the same period last year. Analysts and investors will continue to monitor progress as the company adjusts its product lineup in anticipation of the key holiday shopping season.