Market Overview

lululemon athletica inc. Announces First Quarter Fiscal 2018 Results

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Revenue up 25% to $650 million

Comparable sales increase 20%, or 19% on a constant dollar basis

Diluted EPS of $0.55 for the first quarter

lululemon athletica inc. (NASDAQ:LULU) today announced financial results
for the first quarter ended April 29, 2018.

The summary below provides both GAAP and adjusted non-GAAP financial
measures. In connection with the restructuring of its ivivva operations,
the Company recognized pre-tax costs totaling $17.7 million in the first
quarter of fiscal 2017. The adjusted financial measures for the first
quarter of fiscal 2017 exclude these charges and their related tax
effects. The results for the first quarter of fiscal 2018 did not
include any costs related to the restructuring of the ivivva operations.

For the first quarter ended April 29, 2018:

  • Net revenue was $649.7 million, an increase of 25% compared to the
    first quarter of fiscal 2017. On a constant dollar basis, net revenue
    increased 23%.
  • Total comparable sales increased 20%, or increased 19% on a constant
    dollar basis.
    • Comparable store sales increased 8%, or increased 6% on a constant
      dollar basis.
    • Direct to consumer net revenue increased 62%, or increased 60% on
      a constant dollar basis.
  • Gross profit was $344.7 million, an increase of 34% compared to the
    first quarter of fiscal 2017. Gross profit increased 31% compared to
    adjusted gross profit for the first quarter of fiscal 2017.
  • Gross margin was 53.1%, an increase of 370 basis points compared to
    the first quarter of fiscal 2017. Gross margin increased 270 basis
    points compared to adjusted gross margin for the first quarter of
    fiscal 2017.
  • Income from operations was $104.3 million, an increase of 130%
    compared to the first quarter of fiscal 2017. Income from operations
    increased 65% compared to adjusted income from operations for the
    first quarter of fiscal 2017.
  • Operating margin was 16.1%, an increase of 740 basis points compared
    to the first quarter of fiscal 2017. Operating margin increased 400
    basis points compared to adjusted operating margin for the first
    quarter of fiscal 2017.
  • Income tax expense was $32.1 million compared to $15.1 million in the
    first quarter of fiscal 2017 and the effective tax rate was 29.9%
    compared to 32.6%. The adjusted effective tax rate in the first
    quarter of fiscal 2017 was 30.8%.
  • Diluted earnings per share were $0.55 compared to $0.23 in the first
    quarter of fiscal 2017. Adjusted diluted earnings per share for the
    first quarter of fiscal 2017 were $0.32.

The Company ended the first quarter of fiscal 2018 with $966.6 million
in cash and cash equivalents compared to $698.3 million at the end of
the first quarter of fiscal 2017. Inventories at the end of the first
quarter of fiscal 2018 increased 23% to $373.4 million compared to
$303.9 million at the end of the first quarter of fiscal 2017. The
Company ended the quarter with 411 stores.

Glenn Murphy, Executive Chairman of the Board, commented: "We are
pleased with our continued strong results for the first quarter of 2018.
This successful start to the year reaffirms our strategic priorities and
I would like to thank our team for their passion and commitment to
connecting with guests around the world."

Stuart Haselden, Chief Operating Officer, also noted: "Our first quarter
results reflect the ongoing strength of our business and our continued
focus on product innovation, global growth, digital acceleration, and,
most importantly, investing in our people. Our momentum remains strong
and we are optimistic for 2018 and beyond."

Updated Outlook

For the second quarter of fiscal 2018, we expect net revenue to be in
the range of $660 million to $665 million based on a total comparable
sales increase in the high single digits on a constant dollar basis.
Diluted earnings per share are expected to be in the range of $0.46 to
$0.48 for the quarter. This guidance assumes 136.3 million diluted
weighted-average shares outstanding and a 30.0% tax rate. The guidance
does not reflect potential future repurchases of the Company's shares or
any adjustments which may be recognized in connection with the U.S. tax
reform.

For the full fiscal 2018, we now expect net revenue to be in the range
of $3.040 billion to $3.075 billion based on a total comparable sales
increase in the high single digits on a constant dollar basis. Diluted
earnings per share are expected to be in the range of $3.10 to $3.18 for
the full year. This guidance assumes 136.3 million diluted
weighted-average shares outstanding and a 30.0% tax rate. The guidance
does not reflect potential future repurchases of the Company's shares or
any adjustments which may be recognized in connection with the U.S. tax
reform. Fiscal 2018 is a 53 week year.

The guidance and outlook forward-looking statements made in this press
release are based on management's expectations as of the date of this
press release and the Company undertakes no duty to update or to
continue to provide information with respect to any forward-looking
statements or risk factors, whether as a result of new information or
future events or circumstances or otherwise. Actual results and the
timing of events could differ materially from those anticipated in these
forward-looking statements as a result of risks and uncertainties,
including those stated below.

Conference Call Information

A conference call to discuss first quarter results is scheduled for
today, May 31, 2018, at 4:30 p.m. Eastern time. Those interested in
participating in the call are invited to dial 1-800-319-4610 or
1-604-638-5340, if calling internationally, approximately 10 minutes
prior to the start of the call. A live webcast of the conference call
will be available online at: http://investor.lululemon.com/events.cfm.
A replay will be made available online approximately two hours following
the live call for a period of 30 days.

About lululemon athletica inc.

lululemon athletica inc. (NASDAQ:LULU) is a healthy lifestyle inspired
athletic apparel company for yoga, running, training, and most other
sweaty pursuits, creating transformational products and experiences
which enable people to live a life they love. Setting the bar in
technical fabrics and functional designs, lululemon works with yogis and
athletes in local communities for continuous research and product
feedback. For more information, visit www.lululemon.com.

Non-GAAP Financial Measures

Constant dollar changes in net revenue, total comparable sales,
comparable store sales, and direct to consumer net revenue, and the
adjusted financial results are non-GAAP financial measures.

A constant dollar basis assumes the average foreign exchange rates for
the period remained constant with the average foreign exchange rates for
the same period of the prior year. We provide constant dollar changes in
net revenue, total comparable sales, comparable store sales, and direct
to consumer net revenue because we use these measures to understand the
underlying growth rate of net revenue excluding the impact of changes in
foreign exchange rates. We believe that disclosing these measures on a
constant dollar basis is useful to investors because it enables them to
better understand the level of growth of our business.

Adjusted gross profit, gross margin, income from operations, operating
margin, effective tax rates, and diluted earnings per share exclude the
costs recognized in connection with the restructuring of our ivivva
operations and its related tax effects. We believe these adjusted
financial measures are useful to investors as the adjustments do not
directly relate to our ongoing business operations and therefore do not
contribute to a meaningful evaluation of the trend in our operating
performance. Furthermore, we do not believe the adjustments are
reflective of our expectations of our future operating performance and
believe these non-GAAP measures are useful to investors because of their
comparability to our historical information.

The presentation of this financial information is not intended to be
considered in isolation or as a substitute for, or with greater
prominence to, the financial information prepared and presented in
accordance with GAAP. For more information on these non-GAAP financial
measures, please see the section captioned "Reconciliation of Non-GAAP
Financial Measures" included in the accompanying financial tables, which
includes more detail on the GAAP financial measure that is most directly
comparable to each non-GAAP financial measure, and the related
reconciliations between these financial measures.

Forward-Looking Statements:

This press release includes estimates, projections, statements relating
to our business plans, objectives, and expected operating results that
are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In
many cases, you can identify forward-looking statements by terms such as
"may," "will," "should," "expects," "plans," "anticipates," "outlook,"
"believes," "intends," "estimates," "predicts," "potential" or the
negative of these terms or other comparable terminology. These
forward-looking statements also include our guidance and outlook
statements. These statements are based on management's current
expectations but they involve a number of risks and uncertainties.
Actual results and the timing of events could differ materially from
those anticipated in the forward-looking statements as a result of risks
and uncertainties, which include, without limitation: our ability to
maintain the value and reputation of our brand; the acceptability of our
products to our guests; our highly competitive market and increasing
competition; our reliance on and limited control over third-party
suppliers to provide fabrics for and to produce our products; an
economic downturn or economic uncertainty in our key markets; increasing
product costs and decreasing selling prices; our ability to anticipate
consumer preferences and successfully develop and introduce new,
innovative and updated products; our ability to accurately forecast
guest demand for our products; our ability to safeguard against security
breaches with respect to our information technology systems; any
material disruption of our information systems; our ability to have
technology-based systems function effectively and grow our e-commerce
business globally; the fluctuating costs of raw materials; our ability
to expand internationally in light of our limited operating experience
and limited brand recognition in new international markets; our ability
to deliver our products to the market and to meet guest expectations if
we have problems with our distribution system; imitation by our
competitors; our ability to protect our intellectual property rights;
the continued service of our senior management and our ability to
identify and attract our next Chief Executive Officer; changes in tax
laws or unanticipated tax liabilities; our ability to manage our growth
and the increased complexity of our business effectively; our ability to
cancel store leases if an existing or new store is not profitable; our
ability to source our merchandise profitably or at all if new trade
restrictions are imposed or existing trade restrictions become more
burdensome; increasing labor costs and other factors associated with the
production of our products in South and South East Asia; the operations
of many of our suppliers are subject to international and other risks;
our ability to successfully open new store locations in a timely manner;
our ability to comply with trade and other regulations; seasonality;
fluctuations in foreign currency exchange rates; conflicting trademarks
and the prevention of sale of certain products; our exposure to various
types of litigation; actions of activist stockholders; anti-takeover
provisions in our certificate of incorporation and bylaws; and other
risks and uncertainties set out in filings made from time to time with
the United States Securities and Exchange Commission and available at www.sec.gov,
including, without limitation, our most recent reports on Form 10-K and
Form 10-Q. You are urged to consider these factors carefully in
evaluating the forward-looking statements contained herein and are
cautioned not to place undue reliance on such forward-looking
statements, which are qualified in their entirety by these cautionary
statements. The forward-looking statements made herein speak only as of
the date of this press release and we undertake no obligation to
publicly update such forward-looking statements to reflect subsequent
events or circumstances, except as may be required by law.

 

lululemon athletica inc.

Condensed Consolidated Statements of Operations

Unaudited; Expressed in thousands, except per share amounts

 
      Quarter Ended
April 29, 2018   April 30, 2017
Net revenue $ 649,706 $ 520,307
Costs of goods sold 304,973   263,412  
Gross profit 344,733 256,895
As a percent of net revenue 53.1 % 49.4 %
Selling, general and administrative expenses 240,428 199,141
As a percent of net revenue 37.0 % 38.3 %
Asset impairments and restructuring costs 12,331
As a percent of net revenue % 2.4 %
Income from operations 104,305 45,423
As a percent of net revenue 16.1 % 8.7 %
Other income (expense), net 2,918   907  
Income before income tax expense
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