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. The company’s net revenue dropped 4% year-over-year to $2.42 billion, missing analyst estimates of $2.46 billion due to softer consumer demand across North American retail outlets. Despite the revenue shortfall, diluted earnings per share came in at $2.92, surpassing consensus estimates mainly because of a one-time tariff refund benefit.
This earnings figure was buoyed by $134.5 million in tariff refunds under the International Emergency Economic Powers Act and an additional $4.1 million in related interest, which combined added $0.86 per share to net income. When excluding these tariff-related benefits, core operating margins decreased as selling, general, and administrative expenses grew to 41.7% of net revenue. Revenue from the Americas region declined 8% year-over-year, with comparable sales down 12%, indicating ongoing challenges in main product categories and store traffic.
In light of persistent demand softness in key markets, management has significantly lowered its full-year fiscal 2026 guidance. Lululemon Athletica Inc. now expects annual net revenue to be between $10.35 billion and $10.50 billion, representing a decrease of 5% to 7% compared to the previous year. The forecast for full-year diluted earnings per share has been reduced to a range of $9.48 to $9.73 from $13.26 in fiscal 2025. Following this announcement, the company’s shares dropped nearly 18% during extended after-hours trading.
Earnings Boosted by One-Time Tariff Refund
International markets helped partially offset domestic declines, with total international net revenue increasing 4% on a reported basis and 2% in constant currency. Mainland China’s comparable sales, however, fell 8% amid moderation in regional retail traffic. Overall quarterly operating income declined 13% to $453.7 million, reducing operating margins to 18.8% from 20.7% in the same period last year, despite gross margin expansion driven by the tariff credits.
During the earnings call, interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank noted that brand momentum faced headwinds from softer consumer responses to new product launches and a general decline in store and online traffic. To adapt to these shifts, management reduced its target for net new store openings to around 35 locations for the year and adjusted inventory management strategies to prioritize top-performing categories.
Third Quarter Revenue Expectations Indicate a Drop of 10–11% Year-over-Year
At the close of the second quarter, the company held $1.4 billion in cash and cash equivalents and had total inventory worth $1.7 billion, reflecting a 1% decrease in dollar value and a 7% drop in unit volume from the previous year. Capital deployment during this period included $330 million spent on repurchasing 2.7 million common shares under existing authorization plans. The firm intends to continue its share repurchase program while maintaining capital expenditure estimates between $680 million and $700 million for the full fiscal year.
Looking ahead to the third quarter of fiscal 2026, Lululemon anticipates net revenue between $2.29 billion and $2.32 billion, which would represent a 10% to 11% decrease compared to the same period last year. Diluted earnings per share are projected to be between $0.93 and $0.98, down sharply from $2.59 in the third quarter of fiscal 2025. Investors and analysts will closely watch the company’s execution as it implements product adjustments in preparation for the upcoming holiday shopping season.