NEW YORK / RankWire.AI / – A decline in retail demand across North America led Lululemon Athletica Inc.’s net revenue for fiscal Q2 2026 to decrease by 4% year-over-year, reaching $2.42 billion and falling short of the consensus estimate of $2.46 billion. Although the reported diluted earnings per share of $2.92 surpassed analyst forecasts, this outperformance was largely driven by an unexpected regulatory windfall. A $134.5 million International Emergency Economic Powers Act tariff refund along with related interest contributed an additional $0.86 per share to the bottom line, effectively masking underlying pressures on profit margins.
This significant boost to earnings per share was primarily due to a $134.5 million International Emergency Economic Powers Act tariff refunds and $4.1 million in associated interest, which collectively added $0.86 per share to net income. Adjusting for the tariff relief, the company’s core operating margins declined as selling, general, and administrative expenses grew to 41.7% of net revenue. In the Americas, revenue fell 8% compared to last year, with a 12% decrease in comparable sales, reflecting ongoing challenges in key product categories and reduced store traffic.
As a result, management has sharply cut its full-year fiscal 2026 outlook to account for continued weak demand in vital markets. Lululemon Athletica Inc. now anticipates total net revenue for the year to fall between $10.35 billion and $10.50 billion, indicating a decline of 5% to 7% from the previous year. The company also forecasted full-year diluted earnings per share in the range of $9.48 to $9.73, a notable drop from $13.26 in fiscal 2025. Shares of the firm declined nearly 18% during extended after-hours trading following the announcement.
Net Revenue Declines 4% to $2.42 Billion
International regions offered partial mitigation to the domestic downturn, with overall international net revenue increasing by 4% on a reported basis and 2% when measured in constant currency. Nonetheless, comparable sales in mainland China dipped 8%, amid softer retail foot traffic in the region. Overall quarterly operating income declined 13% to $453.7 million, which reduced operating margins to 18.8% from 20.7% in the same period last year despite gross margin expansion fueled by the tariff credits.
During the earnings call reported by market analysts, interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank highlighted that brand momentum faced headwinds due to weaker consumer responses to new product launches and broader declines in store and online traffic. To adapt to changing demand patterns, management lowered its target for new store openings for the year to around 35 locations and shifted inventory strategies to prioritize top-performing categories.
Overseas Expansion Drives 4% Growth in International Markets
At the end of the second quarter, the retailer held $1.4 billion in cash and equivalents, while total inventory decreased slightly by 1% in dollar terms and 7% in units compared to last year. During the quarter, capital allocation included $330 million spent on repurchasing 2.7 million common shares under existing authorization programs. The company intends to maintain its share buyback program and projects capital expenditures between $680 million and $700 million for the full fiscal year.
Looking ahead, for Q3 of fiscal 2026, Lululemon expects net revenue to be between $2.29 billion and $2.32 billion, representing a decrease of 10% to 11% year-over-year. Diluted earnings per share for the third quarter are projected to range from $0.93 to $0.98, compared to $2.59 in the same period last year. Investors and analysts will closely watch the company’s execution as it adjusts its product offerings in preparation for the crucial holiday shopping season.
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