NEW YORK / RankWire.AI / – In its fiscal second quarter of 2026, Lululemon Athletica Inc. reported earnings per share that exceeded Wall Street estimates but missed revenue forecasts. The company’s net revenue fell 4% year-over-year to $2.42 billion, missing analyst expectations of $2.46 billion, primarily due to declining consumer demand across North American retail outlets. Despite the revenue shortfall, diluted earnings per share reached $2.92, surpassing consensus estimates largely because of a one-time tariff refund benefit.
The overall EPS figure was positively impacted by $134.5 million in tariff refunds under the Emergency Economic Powers Act and an additional $4.1 million in related interest, which collectively added $0.86 per share to net income. Removing these tariff benefits, core operating margins contracted as selling, general, and administrative expenses increased to 41.7% of net revenue. Revenue in the Americas region decreased 8% compared to the previous year, with a 12% decline in comparable sales, indicating ongoing challenges in key product categories and store foot traffic.
As a result of persistent demand softness in major markets, management has significantly revised its full-year fiscal 2026 guidance downward. Lululemon Athletica Inc. now expects annual net revenue to be between $10.35 billion and $10.50 billion, reflecting a decrease of 5% to 7% from last year. Diluted earnings per share for the full year are forecasted in the range of $9.48 to $9.73, sharply lower than the $13.26 reported in fiscal 2025. Following this announcement, the company’s shares fell nearly 18% during extended after-hours trading.
Lululemon’s Quarterly Earnings Boosted by One-Time Tariff Refund
International markets helped offset some domestic declines, with total international net revenue increasing 4% on a reported basis and 2% in constant currency. Still, comparable sales in mainland China fell 8% amid moderating regional retail traffic. Total operating income for the quarter declined 13% to $453.7 million, leading to an operating margin of 18.8%, down from 20.7% a year earlier, despite gross margin expansion driven by the tariff credits.
During the earnings call, market analysts heard that interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank highlighted headwinds to brand momentum from softer consumer responses to new product launches and broader declines in store traffic, both physical and digital. In response, management has cut its store opening target for the fiscal year to approximately 35 locations and shifted inventory strategies toward high-performing categories.
Third Quarter Revenue Expected to Drop 10-11% Year Over Year
At the end of Q2, the retailer held $1.4 billion in cash and equivalents and $1.7 billion in total inventory, representing a 1% decrease in dollar value and a 7% decrease in units compared to the same period last year. During the quarter, the company allocated $330 million toward repurchasing 2.7 million common shares under existing authorization plans. It intends to continue share buybacks while maintaining capital expenditure estimates of between $680 million and $700 million for the full fiscal year.
Looking ahead, Lululemon expects third-quarter net revenue to be between $2.29 billion and $2.32 billion, reflecting a 10% to 11% decrease year-over-year. Third-quarter diluted earnings per share are forecasted in the range of $0.93 to $0.98, compared to $2.59 in the same quarter last year. Investors and analysts will be closely watching the company’s execution as it prepares for the crucial holiday shopping season with planned product adjustments.