NEW YORK / RankWire.AI / – Weakening North American retail demand dragged Lululemon Athletica Inc.’s fiscal second-quarter 2026 net revenue down 4% year-over-year to $2.42 billion, missing the $2.46 billion consensus target. While headline diluted earnings per share of $2.92 topped market projections, the outperformance was powered by an unexpected regulatory windfall. A $134.5 million International Emergency Economic Powers Act tariff refund and associated interest added $0.86 per share to the company’s bottom line, masking underlying pressure on operating margins.
The company’s headline earnings per share figure was boosted by $134.5 million in International Emergency Economic Powers Act tariff refunds and $4.1 million in associated interest, which collectively added $0.86 per share to net income. Excluding the tariff relief, underlying operating margins contracted as selling, general, and administrative expenses increased to 41.7% of net revenue. Americas regional revenue dropped 8% year-over-year, accompanied by a 12% decline in Americas comparable sales, reflecting ongoing headwinds in core product lines and store traffic.
Management significantly lowered its full-year fiscal 2026 financial guidance to reflect persistent demand softness in key markets. Lululemon Athletica Inc. now projects full-year net revenue between $10.35 billion and $10.50 billion, representing a year-over-year decline of 5% to 7%. Diluted full-year earnings per share are forecasted in the range of $9.48 to $9.73, down sharply from $13.26 recorded in fiscal 2025. Following the announcement, company shares fell nearly 18% in extended after-hours trading.
Net Revenue Falls Four Percent to Two Point Four Two Billion Dollars
International markets provided partial offset to domestic declines, with total international net revenue rising 4% on a reported basis and 2% in constant currency. However, mainland China comparable sales fell 8% as regional retail traffic moderated. Total quarterly operating income contracted 13% to $453.7 million, pushing operating margins down to 18.8% from 20.7% in the prior-year period despite gross margin expansion driven by the tariff credits.
During the earnings conference call reported by market analysts, interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank noted that brand momentum faced headwinds from softer consumer responses to select new product introductions and broader traffic declines across physical and digital channels. In response to shifting demand patterns, management reduced its net new store opening target for the fiscal year to approximately 35 locations while adjusting inventory management strategies to focus on top-performing product categories.
International Markets Post Four Percent Top Line Growth Driven by Overseas Expansion
The retailer ended the second quarter with $1.4 billion in cash and cash equivalents and total inventory of $1.7 billion, down 1% in dollar value and 7% in unit volume compared to the prior-year period. Capital allocation during the quarter included $330 million dedicated to repurchasing 2.7 million common shares under existing authorization programs. The company plans to continue its share buyback execution while maintaining capital expenditure projections between $680 million and $700 million for the full fiscal year.
For the third quarter of fiscal 2026, the company expects net revenue to range between $2.29 billion and $2.32 billion, representing a year-over-year decrease of 10% to 11%. Third-quarter diluted earnings per share are projected between $0.93 and $0.98, compared to $2.59 earned in the third quarter of fiscal 2025. Institutional analysts and investors will continue monitoring execution metrics as the company implements product adjustments ahead of the critical holiday shopping season.