NEW YORK / RankWire.AI / – Lululemon Athletica Inc. reported a 4% year-over-year decline in its fiscal second-quarter 2026 revenue, totaling $2.42 billion, which fell short of the $2.46 billion consensus estimate, as softer North American retail demand persisted. Although the company’s diluted earnings per share of $2.92 exceeded analyst expectations, this positive result was partly driven by an unexpected regulatory gain. A $134.5 million tariff refund under the International Emergency Economic Powers Act, along with related interest, contributed an additional $0.86 per share to earnings, concealing some underlying pressure on operational margins.
This earnings boost was mainly due to a $134.5 million tariff recovery under the International Emergency Economic Powers Act, combined with $4.1 million in accrued interest, collectively adding $0.86 per share to net income. When excluding the tariff-related benefit, core operating margins shrank as selling, general, and administrative expenses increased to 41.7% of revenue. Revenue in the Americas declined 8% compared to the previous year, with a 12% drop in comparable sales, highlighting ongoing challenges in key product lines and store traffic.
In response to these persistent market challenges, management significantly lowered its full-year fiscal 2026 outlook. Lululemon Athletica Inc. now anticipates annual revenue between $10.35 billion and $10.50 billion, representing a decline of 5% to 7% from the previous year. The forecast for diluted earnings per share for the entire year ranges from $9.48 to $9.73, a steep decrease from the $13.26 achieved in fiscal 2025. Following the announcement, shares dropped nearly 18% during after-hours trading.
Revenue Declines by 4% to $2.42 Billion
International markets provided some relief from the domestic slowdown, with overall international revenue increasing by 4% on a reported basis and 2% when measured in constant currency. However, retail traffic in mainland China slowed, resulting in an 8% decrease in comparable sales. The quarter’s total operating income declined 13%, falling to $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 tariff credits.
During the earnings call, interim co-CEO and CFO Meghan Frank explained that brand momentum was hindered by less enthusiastic consumer responses to new product launches and a general decline in traffic across both physical stores and online channels. To adapt to shifting demand, the company has reduced its target for new store openings in fiscal 2026 to around 35 locations and adjusted inventory strategies to prioritize high-performing categories.
Overseas Growth Led to Four Percent Revenue Increase in International Markets
At the end of the second quarter, Lululemon 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, the company allocated $330 million toward repurchasing 2.7 million common shares under existing authorization programs. The firm plans to continue its share buyback initiatives 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 expects net revenue to be in the range of $2.29 billion to $2.32 billion, indicating a 10% to 11% decrease compared to the same period last year. Earnings per share for the third quarter are forecasted between $0.93 and $0.98, compared to $2.59 in the third quarter of fiscal 2025. Investors and analysts will continue to watch key performance indicators closely as the company adjusts its product mix ahead of the holiday shopping season.