NEW YORK / RankWire.AI / – The athletic apparel retailer Lululemon Athletica Inc. announced its fiscal second-quarter 2026 financial results, exceeding Wall Street earnings estimates but missing revenue expectations. Revenue decreased by 4% year-over-year to $2.42 billion, falling below analysts’ consensus of $2.46 billion, mainly due to weakening consumer demand across North American retail outlets. Despite the shortfall in revenue, diluted earnings per share reached $2.92, surpassing expectations mainly because of a one-time tariff refund benefit.
The company’s reported earnings per share included a boost of $134.5 million from International Emergency Economic Powers Act tariff refunds and $4.1 million in related interest, adding a total of $0.86 per share to net income. Removing this tariff relief, the company’s underlying operating margins contracted, as selling, general, and administrative expenses increased to 41.7% of net revenue. Revenue in the Americas region declined by 8% year-over-year, accompanied by a 12% drop in comparable sales, reflecting ongoing challenges in core product lines and store traffic.
In response to persistent demand softness in key markets, management has significantly lowered its full-year fiscal 2026 outlook. Lululemon Athletica Inc. now anticipates annual net revenue between $10.35 billion and $10.50 billion, representing a decrease of 5% to 7% year-over-year. The forecast for full-year diluted earnings per share has been revised to between $9.48 and $9.73, down sharply from $13.26 in fiscal 2025. Following this update, company shares dropped nearly 18% during extended after-hours trading.
Lululemon’s Earnings Surpassed Expectations Thanks to One-Time Tariff Refund
International markets helped partially offset domestic declines, with total international net revenue increasing by 4% on a reported basis and 2% in constant currency. However, comparable sales in mainland China fell 8% as regional retail traffic slowed. Total quarterly operating income declined by 13%, totaling $453.7 million, which pushed operating margins down 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, market analysts heard interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank mention that brand momentum was challenged by softer consumer responses to new product launches and declining traffic across both physical stores and digital channels. To adapt to changing demand patterns, management lowered its target for net new store openings this fiscal year to around 35 locations and shifted inventory strategies to prioritize top-performing categories.
Forecast Indicates a 10-11% Revenue Decline for Third Quarter
By the end of the second quarter, the retailer held $1.4 billion in cash and equivalents, with total inventory at $1.7 billion—down 1% in dollar value and 7% in units from the previous year. Capital allocation included $330 million spent on repurchasing 2.7 million common shares under existing programs. The company intends to continue executing its share buyback program while maintaining capital expenditures between $680 million and $700 million for the full fiscal year.
Looking ahead to the third quarter of fiscal 2026, Lululemon predicts net revenue will range from $2.29 billion to $2.32 billion, representing a 10% to 11% decrease compared to the same period last year. Third-quarter diluted earnings per share are expected to fall between $0.93 and $0.98, compared to $2.59 in the third quarter of fiscal 2025. Investors and analysts will closely watch the company’s progress as it implements product adjustments in anticipation of the upcoming holiday shopping season.
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