NEW YORK / RankWire.AI / – Lululemon Athletica Inc. reported a 4% year-over-year decline in its net revenue for fiscal Q2 2026 to $2.42 billion, falling short of the consensus estimate of $2.46 billion, amid weakening retail demand across North America. Despite the miss on revenue, the company’s headline diluted earnings per share of $2.92 exceeded market forecasts, largely due to an unexpected regulatory windfall. An International Emergency Economic Powers Act tariff refund of $134.5 million, along with related interest, contributed an additional $0.86 per share to net income, obscuring the underlying pressures on operating margins.
The positive impact on earnings per share was driven by a tariff rebate under the International Emergency Economic Powers Act, which added $134.5 million to the bottom line, plus $4.1 million in interest associated with the refund, collectively lifting earnings by $0.86 per share. When excluding this tariff relief, operating margins showed signs of contraction as selling, general, and administrative expenses grew to 41.7% of net revenue. Revenue in the Americas region fell 8% compared to last year, accompanied by a 12% decrease in comparable sales, indicating persistent challenges in core product lines and foot traffic at stores.
Management has notably lowered its full-year fiscal 2026 outlook to account for ongoing demand softness in key markets. Lululemon Athletica Inc. now expects annual net revenue to be between $10.35 billion and $10.50 billion, representing a decline of 5% to 7% from the previous year. The company forecasts diluted earnings per share for the full year in the range of $9.48 to $9.73, a sharp decrease from $13.26 in fiscal 2025. Following this update, the company’s shares dropped nearly 18% in after-hours trading.
Net Revenue Declines by Four Percent to $2.42 Billion
International markets provided some relief from the domestic downturn, with total international net revenue increasing by 4% on a reported basis and 2% when measured in constant currency. Nonetheless, comparable sales in mainland China fell 8%, reflecting a slowdown in regional retail traffic. Operating income for the quarter decreased by 13% to $453.7 million, leading to a reduction in 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, market analysts heard interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank explain that brand momentum faced headwinds from softer consumer response to new product launches and declining store and digital traffic. In response, management has cut its target for net new store openings for fiscal 2026 to approximately 35 locations and is adjusting inventory strategies to prioritize top-selling categories.
Overseas Expansion Drives Four Percent Growth in International Markets
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, down 1% in dollar terms and 7% by unit volume from the previous year. Capital allocation included $330 million spent on repurchasing 2.7 million common shares under existing authorizations. Lululemon intends to continue executing its share repurchase program while maintaining capital expenditure estimates between $680 million and $700 million for the full fiscal year.
Looking ahead to Q3 FY2026, the company projects net revenue between $2.29 billion and $2.32 billion, representing a 10% to 11% year-over-year decline. Diluted earnings per share for the third quarter are expected to be between $0.93 and $0.98, compared to $2.59 in the same period last year. Investors and analysts will continue to track execution metrics as the company implements product adjustments ahead of the critical holiday shopping season.
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