NEW YORK / RankWire.AI / – In the context of ongoing challenges in the retail sector, Lululemon Athletica Inc. released its fiscal second-quarter 2026 financial results, showing earnings per share that exceeded Wall Street expectations but falling short on revenue. The company’s net sales decreased by 4% year-over-year to $2.42 billion, missing analysts’ consensus forecast of $2.46 billion due to weakening demand from consumers across North American retail outlets. Despite this revenue shortfall, diluted earnings per share reached $2.92, surpassing estimates mainly because of a one-time tariff refund benefit.
A significant factor in the earnings per share figure was a boost of $134.5 million from International Emergency Economic Powers Act tariff refunds and an additional $4.1 million in related interest, collectively adding $0.86 per share to net income. When excluding the tariff refunds, operating margins showed contraction as selling, general, and administrative expenses increased to 41.7% of net revenue. Revenue from the Americas region declined 8% compared to the previous year, with a 12% decrease in comparable sales, indicating ongoing headwinds affecting core products and store traffic.
In response to persistent demand softness in key markets, management has notably 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 decline of 5% to 7% year-over-year. The company’s full-year diluted earnings per share are now forecasted to range from $9.48 to $9.73, a sharp decrease from $13.26 in fiscal 2025. Following this revision, the company’s shares declined nearly 18% during extended after-hours trading.
Lululemon’s Profit Rise Mainly Attributable to Tariff Refunds
International markets helped offset some of the domestic revenue decline, with total international net revenue increasing by 4% on a reported basis and 2% when measured in constant currency. Nevertheless, comparable sales in mainland China fell 8% amid softer regional retail traffic. Total operating income for the quarter decreased by 13% to $453.7 million, which caused operating margins to drop to 18.8% from 20.7% a year earlier, despite gross margin expansion driven by the tariff credits.
During the earnings call, as reported by market analysts, interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank highlighted that brand momentum faced challenges from weaker consumer responses to some new product launches and declining traffic across both physical stores and digital channels. To adapt to these shifts in demand, management has reduced its net new store openings target for the fiscal year to about 35 locations and shifted inventory strategies to emphasize top-performing categories.
Forecasts Indicate 10-11% Revenue Decline in Q3 Year-over-Year
At the end of the second quarter, the retailer reported holding $1.4 billion in cash and equivalents and inventory totaling $1.7 billion, representing a 1% decrease in dollar value and a 7% reduction in units from the same period last year. During this quarter, $330 million was allocated toward repurchasing 2.7 million common shares under existing authorization plans. The company intends to maintain its share buyback program while projecting capital expenditures between $680 million and $700 million for the full fiscal year.
Looking ahead to the third quarter of fiscal 2026, the company estimates net revenue will be between $2.29 billion and $2.32 billion, reflecting a decrease of 10% to 11% compared to the same period last year. Diluted earnings per share for the quarter are expected to range from $0.93 to $0.98, down sharply from $2.59 in the third quarter of fiscal 2025. Investors and analysts will be closely monitoring execution and product strategies as the company prepares for the crucial holiday shopping season.
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