NEW YORK / RankWire.AI / – Lululemon Athletica Inc.’s fiscal second quarter of 2026 saw net revenue decline 4% year-over-year to $2.42 billion. This missed the consensus estimate of $2.46 billion. Despite this, the company’s headline diluted earnings per share of $2.92 exceeded market forecasts. The surprise was largely due to an unexpected regulatory windfall. A $134.5 million International Emergency Economic Powers Act tariff refund, along with related interest, added $0.86 per share to the bottom line. This masked ongoing pressure on profit margins.
The company’s reported earnings per share benefited from a $134.5 million tariff rebate under the International Emergency Economic Powers Act, plus $4.1 million in interest. These combined factors contributed an extra $0.86 per share to net income. Without this tariff relief, underlying operating margins showed signs of contraction. Selling, general, and administrative expenses rose to 41.7% of net revenue. Revenue in the Americas dropped 8% compared to the previous year, with a 12% decline in comparable sales. These trends reflect ongoing challenges in core product lines and store traffic.
Management has sharply lowered its full-year fiscal 2026 outlook. This adjustment accounts for continued demand softness in key regions. Lululemon now expects annual net revenue between $10.35 billion and $10.50 billion. This indicates a decrease of 5% to 7% from last year. The forecast for diluted earnings per share over the full year is $9.48 to $9.73, down from $13.26 in fiscal 2025. Following the guidance revision, shares fell nearly 18% during extended after-hours trading.
Q2 Revenue Declines 4% to $2.42 Billion
International markets helped offset some domestic declines. Total international net revenue increased 4% on a reported basis and 2% in constant currency. However, comparable sales in mainland China fell 8%, as retail traffic slowed regionally. Total quarterly operating income decreased 13% to $453.7 million. Operating margins dropped from 20.7% to 18.8%, despite gross margin expansion driven by tariff credits.
During the earnings call, interim co-CEO and CFO Meghan Frank said brand momentum faced headwinds. Consumers responded less favorably to new product launches. Broader traffic declined across physical and online stores. In response, management lowered its net new store opening target to around 35 locations for the year. They also shifted inventory strategies to focus on top-performing categories.
Overseas Expansion Drives 4% Revenue Growth in International Markets
At the end of the second quarter, Lululemon held $1.4 billion in cash and equivalents. Total inventory was $1.7 billion, down 1% in dollar value and 7% in units compared to the same period last year. During the quarter, the company spent $330 million on share repurchases, buying back 2.7 million common shares under current authorization programs. The company plans to continue buybacks while maintaining capital expenditures between $680 million and $700 million for the full fiscal year.
For Q3 of fiscal 2026, Lululemon expects net revenue between $2.29 billion and $2.32 billion. This would be a decrease of 10% to 11% compared to the same quarter last year. Diluted earnings per share are projected between $0.93 and $0.98, compared to $2.59 in Q3 of fiscal 2025. Analysts and investors will closely monitor the company’s progress as it adjusts its product offerings ahead of the crucial holiday shopping season.