NEW YORK / RankWire.AI / – Athletic apparel company Lululemon Athletica Inc. announced its financial results for the second quarter of fiscal year 2026. The company posted earnings per share that exceeded Wall Street expectations but fell short on revenue targets. Revenue declined by 4% compared to the previous year, totaling $2.42 billion. This was below analysts’ consensus estimate of $2.46 billion, largely due to weakening consumer demand across North American retail outlets. Despite missing revenue goals, diluted earnings per share reached $2.92, surpassing predictions. This was mainly driven by a one-time tariff refund benefit.
The headline EPS figure was supported by $134.5 million in tariff refunds from the International Emergency Economic Powers Act, along with $4.1 million in related interest. These amounts collectively contributed an extra $0.86 per share to net income. When excluding this tariff relief, underlying operating margins contracted as selling, general, and administrative expenses increased to 41.7% of net revenue. The Americas region experienced an 8% decline in revenue year-over-year, accompanied by a 12% decrease in comparable sales, reflecting ongoing headwinds in core product lines and store traffic.
Management has substantially lowered its full-year fiscal 2026 guidance to account for persistent demand softness in key markets. Lululemon Athletica Inc. now anticipates annual net revenue in the range of $10.35 billion to $10.50 billion, representing a decrease of 5% to 7% compared to last year. The forecast for diluted earnings per share for the full year now stands between $9.48 and $9.73, a significant drop from $13.26 in fiscal 2025. Following the announcement, the company’s shares dropped nearly 18% in after-hours trading.
Lululemon’s Quarterly Earnings Boosted by One-Time Tariff Rebate
International markets helped partially offset the decline seen domestically. Total international revenue increased by 4% on a reported basis and 2% in constant currency. Nonetheless, mainland China’s comparable sales fell by 8%, as regional retail traffic softened. The company’s total operating income for the quarter declined by 13% to $453.7 million, reducing operating margins from 20.7% in the prior-year period to 18.8%, despite gross margin expansion driven by tariff credits.
During the earnings call, interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank highlighted that brand momentum faced headwinds from softer consumer responses to new product launches and a broader slowdown in traffic across both physical and digital channels. In response to changing demand patterns, management reduced its target for new store openings in fiscal 2026 to about 35 locations. Additionally, the company adjusted its inventory strategies, focusing on its top-performing product categories.
Forecast Indicates a 10-11% Revenue Drop in Third Quarter Compared to Last Year
As of the end of the second quarter, the retailer held $1.4 billion in cash and cash equivalents, with total inventory at $1.7 billion. This represents a 1% decrease in dollar value and a 7% drop in units compared to the same period last year. During the quarter, the company allocated $330 million for repurchasing 2.7 million common shares under existing buyback programs. It plans to continue executing share repurchases and projects capital expenditures between $680 million and $700 million for the entire fiscal year.
For the upcoming third quarter of fiscal 2026, Lululemon expects net revenue between $2.29 billion and $2.32 billion, indicating a decline of 10% to 11% year-over-year. Diluted earnings per share for the quarter are projected to be between $0.93 and $0.98, compared to $2.59 in the same quarter last year. Analysts and investors will be closely watching the company’s performance metrics as it implements product adjustments in preparation for the critical holiday shopping season.