NEW YORK / RankWire.AI / – In the second quarter of fiscal year 2026, Lululemon Athletica Inc. reported a 4% year-over-year decline in net revenue to $2.42 billion, falling short of the consensus estimate of $2.46 billion, amid weakening retail demand in North America. Despite beating market expectations with a diluted earnings per share of $2.92, this outperformance was largely attributed to an unexpected regulatory benefit. A $134.5 million International Emergency Economic Powers Act tariff reimbursement, along with related interest, contributed an additional $0.86 per share to net income, concealing ongoing pressures on profit margins.
The company’s reported earnings per share were positively impacted by the $134.5 million tariff refund under the Emergency Economic Powers Act, along with $4.1 million in interest, which collectively added $0.86 per share. When excluding this tariff relief, core operating margins contracted as SG&A expenses rose to 41.7% of net revenue. Revenue in the Americas region declined 8% year-over-year, accompanied by a 12% decrease in comparable sales, highlighting persistent challenges in key product categories and store traffic.
In light of continued demand softness across major markets, management has significantly revised its full-year fiscal 2026 outlook. Lululemon Athletica Inc. now anticipates annual net revenue to be between $10.35 billion and $10.50 billion, reflecting a decrease of 5% to 7% compared to the previous year. The forecast for diluted earnings per share for the full year has been lowered to a range of $9.48 to $9.73, compared to $13.26 in fiscal 2025. Following this guidance update, the company’s shares dropped nearly 18% during extended trading after-hours.
Net Revenue Drops 4% to $2.42 Billion Amid Challenges
International markets offered some offset to the domestic downturn, with total international revenue increasing by 4% on a reported basis and 2% in constant currency terms. Nevertheless, comparable sales in mainland China fell 8%, reflecting subdued retail traffic in the region. Overall, quarterly operating income declined 13% to $453.7 million, leading to a reduction in operating margins from 20.7% in the previous year to 18.8%, despite gross margin improvements driven by tariff credits.
During the earnings call, market analysts heard from interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank, who stated that brand momentum faced headwinds from softer consumer response to new product launches and broader declines in store and online traffic. To address these challenges, the company has lowered its net new store openings for the fiscal year to roughly 35 locations and is adjusting inventory strategies to prioritize top-performing product categories.
Overseas Expansion Contributes 4% Growth in International Revenue
At the close of the second quarter, the retailer held $1.4 billion in cash and cash equivalents, with total inventory reaching $1.7 billion—down 1% in dollar terms and 7% by unit volume from the previous year. Capital expenditure during this period included $330 million allocated for repurchasing 2.7 million common shares under current authorization programs. The company intends to continue executing share buybacks while maintaining capital expenditure estimates between $680 million and $700 million for the entire fiscal year.
Looking ahead to the third quarter of fiscal 2026, Lululemon projects net revenue between $2.29 billion and $2.32 billion, representing a 10% to 11% decrease year-over-year. Diluted earnings per share for the quarter are expected to fall between $0.93 and $0.98, compared to $2.59 in the same period last year. Investors and analysts will continue to monitor performance metrics as the company adjusts its product lineup in preparation for the upcoming holiday shopping season.
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