NEW YORK / RankWire.AI / – A slowdown in North American retail activity contributed to a 4% year-over-year decline in Lululemon Athletica Inc.’s fiscal second-quarter 2026 revenue, which fell short of the consensus estimate of $2.46 billion with actual sales of $2.42 billion. Although the company reported diluted earnings per share of $2.92—exceeding analyst expectations—this positive result was largely due to an unexpected regulatory benefit. A $134.5 million International Emergency Economic Powers Act tariff reimbursement, along with accrued interest, contributed an extra $0.86 per share to net income, concealing underlying pressures on operating margins.
The headline EPS figure was elevated by a $134.5 million tariff refund under the Emergency Economic Powers Act, along with $4.1 million in related interest, collectively adding $0.86 per share to net earnings. When excluding this tariff benefit, operating margins showed signs of contraction, as selling, general, and administrative expenses increased to 41.7% of net revenue. Revenue in the Americas region declined by 8% compared to the previous year, with a 12% drop in comparable sales, reflecting ongoing challenges in core product categories and reduced store traffic.
In response to these persistent challenges, management has substantially lowered its full-year fiscal 2026 outlook. The company now anticipates annual net revenue to be between $10.35 billion and $10.50 billion, representing a decrease of 5% to 7% year-over-year. Full-year diluted EPS is expected to range from $9.48 to $9.73, a notable decline from $13.26 in fiscal 2025. Following this update, Lululemon’s shares dropped nearly 18% during extended trading after the close of the market.
Q2 Revenue Declines by 4%, Reaching $2.42 Billion
International markets helped offset some of the domestic setbacks, with global international net revenue increasing by 4% on a reported basis and 2% when measured in constant currency. Despite this, comparable sales in mainland China declined by 8%, as regional retail traffic slowed. Overall quarterly operating income fell by 13% to $453.7 million, leading to a drop in operating margins from 20.7% in the same period last year to 18.8%, despite gross margin improvements driven by the tariff credits.
During the earnings call, interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank highlighted that brand momentum was challenged by softer consumer reactions to new product launches and a decline in traffic across both physical stores and online channels. To adapt, management reduced their target for new store openings to approximately 35 locations for the fiscal year, while refining inventory strategies to prioritize top-performing categories, aiming to respond more effectively to shifting consumer demand patterns.
Overseas Expansion Boosts International Revenue by 4 Percent
At the end of the second quarter, the company held $1.4 billion in cash and cash equivalents and reported total inventory of $1.7 billion, a slight decrease of 1% in dollar terms and 7% in units compared to the same period last year. During this quarter, capital expenditures included a $330 million share repurchase program, which bought back 2.7 million common shares under existing authorizations. The company plans to continue executing its buyback strategy while projecting capital spending between $680 million and $700 million for the entire fiscal year.
Looking ahead, Lululemon expects its third quarter of fiscal 2026 to generate revenue between $2.29 billion and $2.32 billion, reflecting a decline of 10% to 11% year-over-year. The projected diluted earnings per share for this period range from $0.93 to $0.98, compared to $2.59 in the same quarter last year. Investors and analysts will closely watch the company’s execution and product adjustments as it prepares for the critical holiday shopping season, assessing how well the brand navigates current market headwinds.
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