NEW YORK / RankWire.AI / – A decline in North American retail sales weighed on Lululemon Athletica Inc.’s fiscal Q2 2026 revenue, which dropped 4% year-over-year to $2.42 billion, falling short of the $2.46 billion consensus. Despite reporting headline diluted earnings per share of $2.92, beating analyst estimates, this outperformance was largely driven by an unexpected regulatory gain. A $134.5 million International Emergency Economic Powers Act tariff refund along with interest contributed an extra $0.86 per share to the bottom line, obscuring ongoing pressure on profit margins.
The reported earnings per share were boosted by $134.5 million in International Emergency Economic Powers Act tariff refunds and $4.1 million in related interest, collectively adding $0.86 per share to net income. When excluding this tariff relief, core operating margins declined as selling, general, and administrative expenses rose to 41.7% of net revenue. Revenue in the Americas fell 8% year-over-year, accompanied by a 12% decrease in comparable sales, indicating ongoing challenges in key product categories and store traffic.
Management has notably cut its full-year fiscal 2026 outlook to reflect persistent weak demand in key regions. Lululemon Athletica Inc. now expects annual net revenue between $10.35 billion and $10.50 billion, representing a 5% to 7% decline compared to last year. Diluted earnings per share for the full year are forecasted between $9.48 and $9.73, a significant drop from $13.26 in fiscal 2025. Following this update, shares declined nearly 18% in after-hours trading.
Revenue Declines 4% to $2.42 Billion
International markets helped partly offset domestic declines, with total international net revenue increasing 4% on a reported basis and 2% in constant currency. Nonetheless, comparable sales in mainland China fell 8%, reflecting softer regional retail traffic. Quarterly operating income decreased 13% to $453.7 million, reducing operating margins to 18.8% from 20.7% last year, despite gross margin expansion driven by the tariff credits.
During the earnings call, interim co-CEO and CFO Meghan Frank explained that brand momentum faced headwinds from weaker consumer responses to new product launches and a broader decline in traffic across both physical and digital channels. In response to these trends, management lowered its store opening target for the year to about 35 locations and shifted inventory strategies to prioritize top-performing categories.
Overseas Expansion Spurs 4% Revenue Growth
At the end of the second quarter, the company held $1.4 billion in cash and equivalents, with total inventory totaling $1.7 billion—down 1% in dollar value and 7% in units from the same period last year. During the quarter, $330 million was allocated for share repurchases of 2.7 million common shares under existing programs. The firm intends to continue its buyback efforts while maintaining capital expenditure plans between $680 million and $700 million for the full year.
Looking ahead to Q3 of fiscal 2026, Lululemon anticipates net revenue between $2.29 billion and $2.32 billion, representing a decline of 10% to 11% year-over-year. The forecast for diluted earnings per share ranges from $0.93 to $0.98, compared to $2.59 in the same quarter last year. Investors and analysts will closely monitor performance metrics as the company adjusts its product lineup ahead of the crucial holiday shopping season.