NEW YORK / RankWire.AI / – In its fiscal second quarter of 2026, Lululemon Athletica Inc. revealed mixed financial results in the current fiscal landscape, surpassing Wall Street’s earnings estimates but falling short on revenue. The company’s net sales declined 4% year-over-year to $2.42 billion, missing analyst consensus estimates of $2.46 billion, primarily due to waning consumer demand in North American retail channels. Nonetheless, diluted earnings per share reached $2.92, exceeding expectations largely because of a one-time tariff refund benefit.
The headline figure for earnings per share was bolstered by $134.5 million in tariff refunds under the International Emergency Economic Powers Act, along with $4.1 million in related interest, collectively adding $0.86 per share to net income. When excluding this tariff relief, operating margins showed contraction as selling, general, and administrative expenses rose to 41.7% of net revenue. Revenue from the Americas region decreased by 8% compared to the previous 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, management significantly downgraded its full-year fiscal 2026 guidance. Lululemon Athletica Inc. now expects total net revenue for the year to fall between $10.35 billion and $10.50 billion, representing a decline of 5% to 7% from last year. The forecast for diluted earnings per share for the full year is set between $9.48 and $9.73, sharply lower than the $13.26 recorded in fiscal 2025. Following this announcement, the company’s shares declined nearly 18% during extended after-hours trading.
Lululemon’s Q2 Earnings Boosted by 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. Overall quarterly operating income decreased by 13% to $453.7 million, bringing operating margins down to 18.8% from 20.7% in the same period last year, despite gross margin improvements driven by the tariff credits.
During the earnings call, interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank pointed out that brand momentum faced headwinds from softer consumer responses to recent product launches and a decline in foot traffic across both physical and online channels. To adapt to changing demand, management lowered its target for new store openings to approximately 35 locations for the year while shifting inventory strategies to prioritize best-performing categories.
Third Quarter Revenue Expected to Drop 10-11% Year-over-Year
By the end of the second quarter, the retailer held $1.4 billion in cash and cash equivalents, with total inventory at $1.7 billion, reflecting a 1% decrease in dollar value and a 7% decline in units from the previous year. During this period, capital expenditures included $330 million spent on repurchasing 2.7 million common shares under existing authorization programs. The company intends to continue executing share buybacks while maintaining capital expenditure estimates between $680 million and $700 million for the entire fiscal year.
For the upcoming third quarter of fiscal 2026, Lululemon anticipates net revenue between $2.29 billion and $2.32 billion, indicating a 10% to 11% decrease compared to the previous year. Diluted earnings per share are projected to be between $0.93 and $0.98, a significant drop from $2.59 in the same quarter last year. Investors and analysts will closely observe the company’s execution and strategic adjustments as it prepares for the critical holiday shopping season.