NEW YORK / RankWire.AI / – In its fiscal second quarter of 2026, Lululemon Athletica Inc. reported a 4% year-over-year decline in net revenue to $2.42 billion, primarily due to softening retail demand in North America, which missed the consensus estimate of $2.46 billion. Despite this, the company’s headline diluted earnings per share of $2.92 exceeded market forecasts, largely owing to an unexpected regulatory benefit. A $134.5 million International Emergency Economic Powers Act tariff refund, along with associated interest, contributed an additional $0.86 per share to earnings, concealing some pressure on operating margins.
This earnings boost was driven by a $134.5 million tariff rebate under the International Emergency Economic Powers Act, along with $4.1 million in related interest, adding up to $0.86 per share to net income. When excluding this tariff relief, core operating margins declined as selling, general, and administrative expenses rose to 41.7% of net revenue. Revenue from the Americas region fell 8% year-over-year, with comparable sales in the area decreasing by 12%, indicating ongoing challenges in key product lines and store traffic.
Due to persistent demand softness across major markets, management has significantly lowered its full-year fiscal 2026 guidance. Lululemon Athletica Inc. now forecasts annual net revenue between $10.35 billion and $10.50 billion, reflecting a decline of 5% to 7% compared to last year. The company projects diluted earnings per share for the full year in the range of $9.48 to $9.73, a notable decrease from the $13.26 achieved in fiscal 2025. Following this announcement, shares dropped nearly 18% in extended after-hours trading.
Net Revenue Declines by 4%, Reaching $2.42 Billion
International markets helped offset some of the domestic decline, with total international net revenue increasing by 4% on a reported basis and 2% in constant currency. However, comparable sales in mainland China declined 8% amid softer regional retail traffic. Overall quarterly operating income fell 13% to $453.7 million, causing operating margins to decrease from 20.7% in the same period last year to 18.8%, despite gross margin expansion driven by tariff credits.
During the earnings call, interim co-CEO and CFO Meghan Frank highlighted that brand momentum faced headwinds from weaker consumer responses to new product launches and a slowdown in traffic both online and in physical stores. In response to these shifts, management reduced its net store opening target for the year to around 35 locations and revised inventory strategies to prioritize top-performing categories.
Overseas Expansion Contributes 4% Growth in International Revenue
At the end of the quarter, the company held $1.4 billion in cash and cash equivalents, with total inventory totaling $1.7 billion—down 1% in dollar value and 7% in units compared to last year. During the period, capital expenditures included $330 million spent on repurchasing 2.7 million common shares under existing authorization programs. Lululemon intends to continue executing its share buyback program while maintaining capital expenditure guidance of $680 million to $700 million for the full fiscal year.
For the upcoming 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 are expected to fall between $0.93 and $0.98, compared to $2.59 in the same period of fiscal 2025. Analysts and investors will closely monitor the company’s performance metrics as it adjusts its product offerings ahead of the vital holiday shopping season.