On September 3, local time, Lululemon Athletica disclosed its unaudited second-quarter results for fiscal 2026.

For the period ending August 2, the company reported net revenue of $2.416 billion, down 4% year-over-year, or 5% on a constant currency basis. Net profit fell to $329 million from $371 million in the same period last year, a decline of approximately 11%. Diluted earnings per share dropped 6% to $2.92 from $3.10.

The smaller decrease in per-share earnings compared to net profit is linked to share buybacks. The quarter's diluted weighted-average shares outstanding fell roughly 5.6% year-over-year, with the company spending $330 million to repurchase 2.7 million shares during the period. Additionally, the $2.92 EPS figure includes $0.86 from tariff refunds and related interest, which was not generated by current product sales.

The Americas market remains a primary source of pressure. Regional revenue fell 8% to $1.617 billion, with its share of total revenue dropping to 67% from approximately 70% a year earlier; comparable sales decreased 12%. The company's 10-Q filing attributes this to simultaneous declines in traffic, conversion rates, and average order value. As this market contributes roughly two-thirds of revenue, the downturn in the Americas is difficult for overseas expansion to offset.

Mainland China also saw a slowdown. Quarterly revenue grew 4% year-over-year to $407 million, but on a constant currency basis it declined 2%; comparable sales fell 8% on a constant currency basis.

Over the past year, Lululemon Athletica has added 15 net new directly-operated stores in Mainland China, with new and expanded locations contributing approximately $23 million in revenue, indicating that reported growth is driven more by store expansion than by improved sales at mature channels.

The product mix is also under strain. Women's apparel revenue declined about 4% year-over-year, accessories and other categories fell roughly 13%, while men's apparel was largely flat. Management noted during the earnings call that sales of leggings, a core category, dropped about 20%; newer items like relaxed-fit women's pants performed better but are not yet sufficient to offset the decline in core products.

Quarterly gross margin rose 2 percentage points to 60.5%, but tariff refunds contributed 5.6 percentage points, exceeding the apparent increase.

Meanwhile, higher tariffs, discounts, and fixed costs created headwinds; selling, general, and administrative expenses as a percentage of revenue rose 4 points to 41.7%, causing operating profit to fall 13% and operating margin to decline 1.9 points to 18.8%. The rise in gross margin should not be directly equated with improved core profitability.

Following the first quarter, the company has again lowered its full-year guidance: revenue outlook is cut from $11 billion to $11.15 billion down to $10.35 billion to $10.5 billion, implying a year-over-year decline of 5% to 7%; EPS guidance is reduced from $10.95 to $11.15 down to $9.48 to $9.73, with the new outlook already incorporating the $0.86 refund benefit. Third-quarter revenue is projected to decline 10% to 11%.

Lululemon Athletica still holds approximately $1.39 billion in cash, with inventory value down 1% year-over-year and unit counts down 7%. Management is trimming SKUs, accelerating replenishment of bestsellers, and increasing marketing investment, while also lowering its full-year net store opening plan from around 40 to 35 locations.

New CEO Heidi O'Neill is set to take office on September 8. What remains to be observed is whether product adjustments can drive a rebound in traffic and full-price sales, rather than continuing to rely primarily on store openings and one-off items to support financial performance.