Market Overview

lululemon athletica inc. Announces Second Quarter Fiscal 2018 Results

Share:

Revenue up 25% to $724 million

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

Diluted EPS of $0.71 for the second quarter

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

Glenn Murphy, Chairman of the Board, commented: "We are very pleased
with the consistent performance of our business. On behalf of the Board,
I want to welcome Calvin McDonald to lululemon and thank our management
team for delivering these incredible results."

The summary below provides both GAAP and adjusted non-GAAP financial
measures. The adjusted financial measures exclude the costs incurred in
connection with the restructuring of the Company's ivivva operations in
second quarter of fiscal 2017, and their related tax effects.

For the second quarter ended July 29, 2018:

  • Net revenue was $723.5 million, an increase of 25% compared to the
    second quarter of fiscal 2017. On a constant dollar basis, net revenue
    increased 24%.
  • Total comparable sales increased 20%, or increased 19% on a constant
    dollar basis.
    • Comparable store sales increased 10%, or increased 10% on a
      constant dollar basis.
    • Direct to consumer net revenue increased 48%, or increased 47% on
      a constant dollar basis. During the second quarter of fiscal 2017,
      we held an online warehouse sale. Excluding the impact of this
      sale, direct to consumer net revenue increased 66%, or increased
      65% on a constant dollar basis.
  • Gross profit was $396.2 million, an increase of 33% compared to the
    second quarter of fiscal 2017. Gross profit increased 32% compared to
    adjusted gross profit for the second quarter of fiscal 2017.
  • Gross margin was 54.8%, an increase of 360 basis points compared to
    the second quarter of fiscal 2017. Gross margin increased 320 basis
    points compared to adjusted gross margin for the second quarter of
    fiscal 2017.
  • Income from operations was $134.2 million, an increase of 95% compared
    to the second quarter of fiscal 2017. Income from operations increased
    81% compared to adjusted income from operations for the second quarter
    of fiscal 2017.
  • Operating margin was 18.5%, an increase of 670 basis points compared
    to the second quarter of fiscal 2017. Operating margin increased 570
    basis points compared to adjusted operating margin for the second
    quarter of fiscal 2017.
  • Income tax expense was $40.0 million compared to $20.8 million in the
    second quarter of fiscal 2017 and the effective tax rate was 29.5%
    compared to 29.9%. The adjusted effective tax rate in the second
    quarter of fiscal 2017 was 29.6%.
  • Diluted earnings per share were $0.71 compared to $0.36 in the second
    quarter of fiscal 2017. Adjusted diluted earnings per share for the
    second quarter of fiscal 2017 were $0.39.
  • The Company repurchased 3.4 million shares of its own common stock at
    an average cost of $121.08 per share.

The Company ended the second quarter of fiscal 2018 with $777.8 million
in cash and cash equivalents compared to $721.2 million at the end of
the second quarter of fiscal 2017. Inventories at the end of the second
quarter of fiscal 2018 increased 24% to $392.7 million compared to
$316.4 million at the end of the second quarter of fiscal 2017. The
Company ended the quarter with 415 stores.

Stuart Haselden, Chief Operating Officer, commented: "We're pleased to
see the great results of Q2 across all parts of our business now
extending into the current quarter. This ongoing success positions us to
achieve our 2020 goals and beyond. Above all, we want to thank our
educators and teams around the world who make this possible."

Calvin McDonald, Chief Executive Officer, also noted: "I'm excited to
work with the leadership team to build upon this considerable
success. We have an incredible growth trajectory in front of us, given
the strength of the brand and our people."

Updated Outlook

For the third quarter of fiscal 2018, we expect net revenue to be in the
range of $720 million to $730 million based on a total comparable sales
increase in the low teens on a constant dollar basis. Diluted earnings
per share are expected to be in the range of $0.65 to $0.67 for the
quarter. This guidance assumes 133.0 million diluted weighted-average
shares outstanding and a 30% 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 $3.185 billion to $3.235 billion based on a total comparable sales
increase in the low teens on a constant dollar basis. Diluted earnings
per share are expected to be in the range of $3.45 to $3.53 for the full
year. This guidance assumes 134.0 million diluted weighted-average
shares outstanding and a 30% 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 second quarter results is scheduled for
today, August 30, 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, Asia
total comparable sales, comparable store sales, direct to consumer net
revenue, and direct to consumer net revenue excluding the online
warehouse sale, 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, Asia total comparable sales,
comparable store sales, direct to consumer net revenue, and direct to
consumer net revenue excluding the online warehouse sale 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, income tax expense, 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;
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; the continued service of our senior management;
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 Two Quarters Ended
July 29, 2018   July 30, 2017 July 29, 2018   July 30, 2017
Net revenue $ 723,500 $ 581,054 $ 1,373,206 $ 1,101,361
Costs of goods sold 327,306   283,632   632,279   547,044  
Gross profit 396,194 297,422 740,927 554,317
As a percent of net revenue 54.8 % 51.2 % 54.0 % 50.3 %
Selling, general and administrative expenses 261,986 225,524 502,414 424,665
As a percent of net revenue 36.2 % 38.8 % 36.6 % 38.6 %
Asset impairments and restructuring costs 3,186 15,517
As a percent of net revenue % 0.6 % % 1.3 %
Income from operations 134,208 68,712 238,513 114,135
As a percent of net revenue 18.5 % 11.8 % 17.4 % 10.4 %
Other income (expense), net 1,591   812   4,509   1,719  
Income before income tax expense 135,799 69,524 243,022 115,854
Income tax expense 40,029   20,813   72,099   35,897  
Net income $ 95,770   $ 48,711   $ 170,923   $ 79,957  
 
Basic earnings per share $ 0.71 $ 0.36 $ 1.27 $ 0.59
Diluted earnings per share $ 0.71 $ 0.36 $ 1.26 $ 0.58
Basic weighted-average shares outstanding 133,986 136,171 134,744 136,604
Diluted weighted-average shares outstanding 134,530 136,303 135,230 136,747
 

lululemon athletica inc.

 

Condensed Consolidated Balance Sheets

Unaudited; Expressed in thousands

     
July 29, January 28, July 30,
2018 2018 2017
ASSETS
Current assets
Cash and cash equivalents $ 777,841 $ 990,501 $ 721,212
Inventories 392,672 329,562 316,368
Prepaid and receivable income taxes 62,203 48,948 66,161
Other current assets 75,321   67,271   67,281
Total current assets 1,308,037 1,436,282 1,171,022
Property and equipment, net 487,546 473,642 426,961
Goodwill and intangible assets, net 24,255 24,679 24,749
Deferred income taxes and other non-current assets 61,319   63,880   64,191
Total assets $ 1,881,157   $ 1,998,483   $ 1,686,923
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 110,523 $ 24,646 $ 19,049
Accrued inventory liabilities 12,597 13,027 21,292
Accrued compensation and related expenses 62,794 70,141 47,920
Current income taxes payable 3,021 15,700 6,519
Unredeemed gift card liability 64,420 82,668 56,170
Revolving credit facility 100,000
Other current liabilities 95,806   86,416   73,341
Total current liabilities 449,161 292,598 224,291
Non-current income taxes payable 44,078 48,268
Deferred income tax liability 1,582 1,336 7,668
Other non-current liabilities 66,121 59,321 57,155
Stockholders' equity 1,320,215   1,596,960   1,397,809
Total liabilities and stockholders' equity $ 1,881,157   $ 1,998,483   $ 1,686,923
 
lululemon athletica inc.
 

Condensed Consolidated Statements of Cash Flows

Unaudited; Expressed in thousands

   
Two Quarters Ended
July 29, 2018   July 30, 2017
Cash flows from operating activities
Net income $ 170,923 $ 79,957
Adjustments to reconcile net income to net cash provided by
operating activities
39,103   22,081  
Net cash provided by operating activities 210,026 102,038
Net cash used in investing activities (89,292 ) (49,889 )
Net cash used in financing activities (300,239 ) (91,910 )
Effect of exchange rate changes on cash (33,155 ) 26,127  
Decrease in cash and cash equivalents (212,660 ) (13,634 )
Cash and cash equivalents, beginning of period 990,501   734,846  
Cash and cash equivalents, end of period $ 777,841   $ 721,212  
 

lululemon athletica inc.

Reconciliation of Non-GAAP Financial Measures
Unaudited;
Expressed in thousands, except per share amounts

Constant dollar changes in net revenue, total comparable sales, Asia
total comparable sales, comparable store sales, direct to consumer net
revenue, and direct to consumer net revenue excluding the online
warehouse sale

The below changes in net revenue, total comparable sales, Asia total
comparable sales, comparable store sales, direct to consumer net
revenue, and direct to consumer net revenue excluding the online
warehouse sale show the net change for the second quarter of fiscal 2018
compared to the second quarter of fiscal 2017.

 

Net Revenue

 

Total
Comparable
Sales1,2

 

Asia Total
Comparable
Sales1,2

 

Comparable
Store Sales2

 

Direct to
Consumer Net
Revenue

 

Direct to
Consumer Net
Revenue Excluding
the Online
Warehouse Sale

Increase 25 % 20 % 55 % 10 % 48 % 66 %
Adjustments due to foreign exchange rate changes (1 ) (1 ) (5 )   (1 ) (1 )
Increase in constant dollars 24 % 19 % 50 % 10 % 47 % 65 %

__________

1

 

Total comparable sales includes comparable store sales and direct
to consumer sales.

2

Comparable store sales reflects net revenue from company-operated
stores that have been open for at least 12 months, or open for at
least 12 months after being significantly expanded.

 

Adjusted financial measures

The following table reconciles adjusted financial measures with the most
directly comparable measures calculated in accordance with GAAP. The
adjustments relate to the restructuring of our ivivva operations and its
related tax effects. Please refer to Note 7 to the unaudited interim
consolidated financial statements included in Item 1 of Part I of our
Report on Form 10-Q to be filed with the SEC on or about August 30, 2018
for further information on these adjustments.

  Quarter Ended   Quarter Ended
July 29, 2018 July 30, 2017

GAAP Results

  Adjustments  

Adjusted
Results
(Non-GAAP)

GAAP Results  

Restructuring
of ivivva
Operations
Adjustments

 

Adjusted Results
(Non-GAAP)

(In thousands, except per share amounts)

Gross profit $ 396,194 $ $ 396,194 $ 297,422 $

2,244

$ 299,666
Gross margin 54.8 % % 54.8 % 51.2 % 0.4 % 51.6 %
Income from operations 134,208 134,208 68,712 5,430 74,142
Operating margin 18.5 % % 18.5 % 11.8 % 1.0 % 12.8 %
Income before income tax expense 135,799 135,799 69,524 5,430 74,954
Income tax expense 40,029 40,029 20,813 1,390 22,203
Effective tax rate 29.5 % % 29.5 % 29.9 % (0.3 )% 29.6 %
Diluted earnings per share $ 0.71 $ $ 0.71 $ 0.36 $ 0.03 $ 0.39
 
lululemon athletica inc.
 

Company-operated Store Count and Square Footage(1)

Square Footage Expressed in Thousands

       

Number of Stores
Open at the
Beginning of the
Quarter

Number of Stores
Opened
During the
Quarter

Number of Stores
Closed
During the
Quarter

Number of Stores
Open at the

End of the Quarter

3rd Quarter 20172 421 17 50 388
4th Quarter 2017 388 16 404
1st Quarter 2018 404 7 411
2nd Quarter 2018 411 5 1 415
 
 

Total Gross
Square Feet
at the
Beginning of the
Quarter

Gross Square Feet
Added During the
Quarter(3)

Gross Square Feet
Lost During the
Quarter(3)

Total Gross
Square Feet
at the End
of the

Quarter

3rd Quarter 20172 1,238 43 89 1,192
4th Quarter 2017 1,192 70 1,262
1st Quarter 2018 1,262 15 1,277
2nd Quarter 2018 1,277 29 3 1,303

__________

1

 

Company-operated store count and square footage summary excludes
retail locations operated by third parties under license and
supply arrangements.

2

The store closures during the third quarter of fiscal 2017 include
48 ivivva branded company-operated stores that closed on August
20, 2017 as part of the restructuring of the Company's ivivva
operations. The Company's seven remaining ivivva branded stores
remain in operation.

3

Gross square feet added/lost during the quarter includes net
square foot additions for company-operated stores which have been
renovated or relocated in the quarter.

View Comments and Join the Discussion!