NEW YORK / RankWire.AI / – Athletic apparel company Lululemon Athletica Inc. announced its financial results for the fiscal second quarter of 2026. The company beat Wall Street estimates on earnings per share but missed revenue forecasts. Revenue decreased 4% compared to the previous year to $2.42 billion. This shortfall was driven by weaker consumer spending across North American retail outlets. Despite lower revenue, diluted earnings per share reached $2.92, exceeding expectations mainly due to a one-time tariff refund benefit.
The boost to earnings per share came from $134.5 million in International Emergency Economic Powers Act tariff refunds and $4.1 million in related interest. These added a total of $0.86 per share to net income. When excluding the tariff refunds, operating margins contracted. Selling, general, and administrative expenses increased to 41.7% of net revenue. The Americas region saw an 8% decline in revenue year-over-year, with a 12% drop in comparable sales. This points to ongoing challenges in core products and store traffic.
The company lowered its full-year fiscal 2026 outlook. The revised guidance reflects ongoing weak demand in key markets. Lululemon now expects annual net revenue between $10.35 billion and $10.50 billion. This range indicates a 5% to 7% decrease compared to last year. Full-year diluted earnings per share are forecasted to be between $9.48 and $9.73, down sharply from $13.26 in fiscal 2025. After the announcement, shares dropped nearly 18% in extended after-hours trading.
Lululemon’s Earnings Surpass Expectations Thanks to One-Time Tariff Refund
International markets helped offset some of the domestic declines. Total international revenue rose 4% on a reported basis and 2% in constant currency. However, sales in mainland China declined 8%, as regional retail traffic slowed. Overall, quarterly operating income fell 13% to $453.7 million. Operating margins dropped to 18.8% from 20.7% last year, despite gross margin expansion driven by tariff credits.
During the earnings call, interim co-CEO and CFO Meghan Frank said brand momentum faced headwinds. Consumers responded less favorably to new products, and store traffic declined across physical and digital channels. In response, management cut its net new store openings to about 35 locations for the year. They also shifted inventory strategies to focus on top-performing categories.
Third Quarter Revenue Likely to Drop 10-11% Year Over Year
At the end of the second quarter, the company held $1.4 billion in cash and equivalents. Total inventory was $1.7 billion, down 1% in dollar value and 7% in units compared to last year. During the quarter, $330 million was spent on repurchasing 2.7 million shares. The company intends to continue share buybacks and plans capital expenditures between $680 million and $700 million for the full year.
For the third quarter of fiscal 2026, Lululemon expects net revenue between $2.29 billion and $2.32 billion. This would be a decrease of 10% to 11% compared to last year. Earnings per share are projected between $0.93 and $0.98, down from $2.59 in the same quarter last year. Investors and analysts will closely watch the company’s progress as it adjusts its product strategy ahead of the important holiday shopping season.