NEW YORK / RankWire.AI / – Lululemon Athletica Inc. reported fiscal second-quarter 2026 results that exceeded earnings estimates, despite a 4% year-over-year decline in net revenue to $2.42 billion, which fell short of the consensus target of $2.46 billion. The company’s strong headline diluted earnings per share of $2.92 outpaced market forecasts, largely due to an unexpected regulatory benefit. A $134.5 million International Emergency Economic Powers Act tariff refund, along with accrued interest, contributed an additional $0.86 per share to the bottom line, obscuring underlying pressure on operating margins.
The overall earnings per share figure was lifted by the $134.5 million International Emergency Economic Powers Act tariff refunds and $4.1 million in related interest, which collectively added $0.86 per share to net income. Excluding this tariff relief, operating margins showed signs of contraction 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% decrease in comparable sales, highlighting ongoing challenges in core product categories and store traffic.
In response to persistent demand softness, management has significantly lowered its full-year fiscal 2026 financial outlook. Lululemon Athletica Inc. now anticipates full-year net revenue between $10.35 billion and $10.50 billion, indicating a decline of 5% to 7% compared to the previous year. The company projects diluted earnings per share for the full year in the range of $9.48 to $9.73, a notable drop from $13.26 in fiscal 2025. Following the announcement, shares fell nearly 18% in after-hours trading.
Net Revenue Declines 4% to $2.42 Billion
International markets offered some offset to the domestic downturn, with global international net revenue increasing by 4% on a reported basis and 2% in constant currency. Nonetheless, mainland China’s comparable sales declined 8%, reflecting a slowdown in regional retail traffic. Total operating income for the quarter dropped 13% to $453.7 million, causing operating margins to decline to 18.8% from 20.7% in the prior year, despite gross margin expansion driven by the 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 responses to new product launches and broader declines in traffic both in physical stores and online. To adapt to changing demand patterns, management has lowered its net new store opening target for the year to approximately 35 locations and shifted inventory strategies to prioritize best-selling categories.
Overseas Expansion Drives 4% Growth in International Markets
At the close of the second quarter, the company held $1.4 billion in cash and equivalents and reported total inventory of $1.7 billion, representing a 1% decrease in dollar value and a 7% drop in units compared to the same period last year. Capital spending during this quarter included $330 million allocated for repurchasing 2.7 million common shares under existing buyback programs. The company intends to continue executing share repurchases while maintaining capital expenditure guidance between $680 million and $700 million for the full fiscal year.
Looking ahead to the third quarter of fiscal 2026, Lululemon expects net revenue to fall between $2.29 billion and $2.32 billion, representing a decrease of 10% to 11% year-over-year. The forecasted diluted earnings per share for the quarter range from $0.93 to $0.98, compared to $2.59 in the same period last year. Analysts and investors will closely watch the company’s execution metrics as it makes product adjustments and prepares for the holiday shopping season.