NEW YORK / RankWire.AI / – In its fiscal second quarter of 2026, Lululemon Athletica Inc. announced earnings per share that exceeded Wall Street estimates but fell short on revenue. The company’s net revenue decreased 4% year-over-year to $2.42 billion, missing analysts’ forecast of $2.46 billion due to softer consumer demand across North American retail outlets. Despite the revenue shortfall, diluted earnings per share reached $2.92, surpassing expectations mainly because of a one-time tariff refund benefit.
The company’s headline EPS was boosted by $134.5 million in International Emergency Economic Powers Act tariff refunds and an additional $4.1 million in related interest, together adding $0.86 per share to net income. When excluding this tariff relief, core operating margins shrank as selling, general, and administrative expenses rose to 41.7% of net revenue. Americas regional revenue declined 8% year-over-year, with a 12% drop in comparable sales, reflecting ongoing challenges in core product lines and store foot traffic.
Management has significantly reduced its full-year fiscal 2026 outlook to account for continued soft demand in key markets. Lululemon Athletica Inc. now estimates full-year net revenue between $10.35 billion and $10.50 billion, indicating a decline of 5% to 7% compared to last year. Diluted earnings per share for the full year are expected to be between $9.48 and $9.73, down sharply from $13.26 in fiscal 2025. Following this update, the company’s shares dropped nearly 18% during extended after-hours trading.
Lululemon’s Profit Jumped Due to One-Time Tariff Refunds
International markets partly offset the domestic downturn, with total international net revenue increasing 4% on a reported basis and 2% in constant currency. However, mainland China’s comparable sales dropped 8% as regional retail traffic slowed. Total quarterly operating income fell 13% to $453.7 million, causing operating margins to shrink to 18.8% from 20.7% last year, despite gross margin expansion driven by tariff credits.
During the earnings call, interim co-CEO and CFO Meghan Frank pointed out that brand momentum faces headwinds from softer consumer responses to new product launches and declining traffic in both physical stores and online channels. To adapt to shifting demand, management lowered its target for new store openings to about 35 locations this year and shifted inventory strategies to prioritize top-performing categories.
Third Quarter Revenue Expected to Drop 10-11%
By the end of the second quarter, the retailer held $1.4 billion in cash and equivalents, with total inventory at $1.7 billion—down 1% in dollar value and 7% in units from the previous year. During the quarter, $330 million was allocated toward repurchasing 2.7 million common shares under existing programs. The company intends to proceed with its share buyback plans while maintaining capital expenditures between $680 million and $700 million for the full fiscal year.
For the upcoming third quarter of fiscal 2026, Lululemon anticipates net revenue between $2.29 billion and $2.32 billion, representing a decrease of 10% to 11% year-over-year. Projected diluted earnings per share are between $0.93 and $0.98, compared to $2.59 in the same period last year. Analysts and investors will closely watch execution metrics as the company adjusts its product offerings ahead of the critical holiday shopping season.