NEW YORK / RankWire.AI / – Athletic apparel retailer Lululemon Athletica Inc. announced its financial results for the second quarter of fiscal 2026, exceeding Wall Street expectations for earnings per share but missing revenue estimates. Revenue fell 4% year-over-year to $2.42 billion, short of the analyst consensus of $2.46 billion, due to weakened consumer demand across North American stores. Despite this revenue shortfall, diluted earnings per share reached $2.92, surpassing forecasts largely because of a one-time tariff refund benefit.
The company’s EPS figure was positively impacted by $134.5 million in tariff refunds under the International Emergency Economic Powers Act and $4.1 million in related interest, adding $0.86 per share to net income. Without this tariff relief, core operating margins shrank as selling, general, and administrative expenses increased to 41.7% of revenue. Revenue in the Americas region declined 8% year-over-year, with comparable sales dropping 12%, reflecting ongoing challenges in key product lines and store traffic.
Management significantly cut its full-year fiscal 2026 guidance to account for persistent demand softness in crucial markets. Lululemon Athletica Inc. now expects total revenue for the year to be between $10.35 billion and $10.50 billion, representing a decline of 5% to 7% compared to last year. Full-year diluted EPS projections have been lowered to a range of $9.48 to $9.73, down sharply from $13.26 in fiscal 2025. Following this update, the company’s shares dropped nearly 18% in extended after-hours trading.
Lululemon’s Earnings Surpass Expectations Thanks to Unique Tariff Refund
International markets helped partly offset domestic declines, with total international revenue increasing 4% on a reported basis and 2% in constant currency. However, comparable sales in mainland China fell 8%, as regional retail traffic moderated. Quarterly operating income decreased 13% to $453.7 million, reducing operating margins to 18.8% from 20.7% last year, despite gross margin growth driven by tariff credits.
During the earnings call, interim co-CEO and CFO Meghan Frank noted that brand momentum was hindered by softer consumer responses to recent product launches and declining traffic both in stores and online. To adapt to changing demand, management lowered its net new store openings for the year to around 35 locations and shifted inventory strategies toward top-performing categories.
Forecast Sees 10-11% Drop in Q3 Revenue Year Over Year
At the end of the second quarter, Lululemon held $1.4 billion in cash and equivalents and $1.7 billion in total inventory, down 1% in dollar value and 7% in units compared to last year. During the quarter, the company allocated $330 million to repurchase 2.7 million common shares under existing programs. It plans to continue share repurchases while maintaining capital expenditures between $680 million and $700 million for the full fiscal year.
Looking ahead, Lululemon expects third-quarter revenue to be between $2.29 billion and $2.32 billion, down 10% to 11% from the previous year. Third-quarter diluted EPS is projected to range from $0.93 to $0.98, compared to $2.59 in the same period last year. Investors and analysts will continue to monitor the company’s progress as it adjusts its product offerings ahead of the upcoming holiday shopping season.