lululemon athletica inc. Announces Second Quarter Fiscal 2019 Results

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lululemon athletica inc. Announces Second Quarter Fiscal 2019 Results

Sep 5, 2019

Revenue up 22% to $883 million

Comparable sales increase 15%, or 17% on a constant dollar basis

Diluted EPS of $0.96 for the second quarter

VANCOUVER, British Columbia--(BUSINESS WIRE)--Sep. 5, 2019-- lululemon athletica inc. (NASDAQ:LULU) today announced financial results for the second quarter of fiscal 2019.

For the second quarter ended August 4, 2019:

  • Net revenue was $883.4 million, an increase of 22% compared to the second quarter of fiscal 2018. On a constant dollar basis, net revenue increased 23%.
  • Total comparable sales increased 15%, or increased 17% on a constant dollar basis.
    • Comparable store sales increased 10%, or increased 11% on a constant dollar basis.
    • Direct to consumer net revenue increased 30%, or increased 31% on a constant dollar basis.
  • Direct to consumer net revenue represented 24.6% of total net revenue compared to 23.1% for the second quarter of fiscal 2018.
  • Gross profit was $485.8 million, an increase of 23% compared to the second quarter of fiscal 2018.
  • Gross margin was 55.0%, an increase of 20 basis points compared to the second quarter of fiscal 2018.
  • Income from operations was $168.0 million, an increase of 25% compared to the second quarter of fiscal 2018.
  • Operating margin was 19.0%, an increase of 50 basis points compared to the second quarter of fiscal 2018.
  • Income tax expense was $44.8 million compared to $40.0 million in the second quarter of fiscal 2018 and the effective tax rate was 26.4% compared to 29.5%.
  • Diluted earnings per share were $0.96 compared to $0.71 in the second quarter of fiscal 2018.
  • The Company repurchased 9.6 thousand shares of its own common stock at an average cost of $164.05 per share.

The Company ended the second quarter of fiscal 2019 with $623.7 million in cash and cash equivalents compared to $777.8 million at the end of the second quarter of fiscal 2018. Inventories at the end of the second quarter of fiscal 2019 increased 26% to $494.3 million compared to $392.7 million at the end of the second quarter of fiscal 2018. The Company ended the quarter with 460 stores.

Calvin McDonald, Chief Executive Officer, commented: "We're pleased with the ongoing strength across our business. We continue to make progress in delivering against our Power of Three growth pillars - product innovation, omni-guest experience, and market expansion. Our success demonstrates the significant runway in front of lululemon and I'm grateful to our teams for bringing our vision to life."

Updated Outlook

For the third quarter of fiscal 2019, we expect net revenue to be in the range of $880 million to $890 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 $0.90 to $0.92 for the quarter. This guidance assumes 131 million diluted weighted-average shares outstanding and a 28% tax rate. The guidance does not reflect potential future repurchases of the Company's shares.

For the full fiscal 2019, we now expect net revenue to be in the range of $3.800 billion to $3.840 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 $4.63 to $4.70 for the full year, based on a 27.5% effective tax rate. The guidance assumes 131 million diluted weighted-average shares outstanding. The guidance does not reflect potential future repurchases of the Company's shares.

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.

Shifted Calendar for Comparable Sales

Due to the 53rd week in fiscal 2018, comparable sales are calculated on a one week shifted basis in fiscal 2019. For the second quarter of fiscal 2019, the 13 weeks ended August 4, 2019 are compared to the 13 weeks ended August 5, 2018 rather than July 29, 2018.

Conference Call Information

A conference call to discuss second quarter results is scheduled for today, September 5, 2019, 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 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.

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; changes in consumer shopping preferences and shifts in distribution channels; 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; our ability to source and sell our merchandise profitably or at all if new trade restrictions are imposed or existing trade restrictions become more burdensome; 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; 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 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

 

 

August 4, 2019

 

July 29, 2018

 

August 4, 2019

 

July 29, 2018

Net revenue

 

$

883,352

 

 

$

723,500

 

 

$

1,665,667

 

 

$

1,373,206

 

Costs of goods sold

 

397,556

 

 

327,306

 

 

758,151

 

 

632,279

 

Gross profit

 

485,796

 

 

396,194

 

 

907,516

 

 

740,927

 

As a percent of net revenue

 

55.0

%

 

54.8

%

 

54.5

%

 

54.0

%

Selling, general and administrative expenses

 

317,814

 

 

261,986

 

 

610,722

 

 

502,414

 

As a percent of net revenue

 

36.0

%

 

36.2

%

 

36.7

%

 

36.6

%

Income from operations

 

167,982

 

 

134,208

 

 

296,794

 

 

238,513

 

As a percent of net revenue

 

19.0

%

 

18.5

%

 

17.8

%

 

17.4

%

Other income (expense), net

 

1,850

 

 

1,591

 

 

4,229

 

 

4,509

 

Income before income tax expense

 

169,832

 

 

135,799

 

 

301,023

 

 

243,022

 

Income tax expense

 

44,842

 

 

40,029

 

 

79,430

 

 

72,099

 

Net income

 

$

124,990

 

 

$

95,770

 

 

$

221,593

 

 

$

170,923

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.96

 

 

$

0.71

 

 

$

1.70

 

 

$

1.27

 

Diluted earnings per share

 

$

0.96

 

 

$

0.71

 

 

$

1.69

 

 

$

1.26

 

Basic weighted-average shares outstanding

 

130,285

 

 

133,986

 

 

130,489

 

 

134,744

 

Diluted weighted-average shares outstanding

 

130,783

 

 

134,530

 

 

131,060

 

 

135,230

 

 

lululemon athletica inc.
Condensed Consolidated Balance Sheets
Unaudited; Expressed in thousands

 

 

 

August 4,
2019

 

February 3,
2019

 

July 29,
2018

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

623,738

 

 

$

881,320

 

 

$

777,841

 

Inventories

 

494,294

 

 

404,842

 

 

392,672

 

Prepaid and receivable income taxes

 

112,572

 

 

49,385

 

 

62,203

 

Other current assets

 

102,409

 

 

93,735

 

 

75,321

 

Total current assets

 

1,333,013

 

 

1,429,282

 

 

1,308,037

 

Property and equipment, net

 

617,090

 

 

567,237

 

 

487,546

 

Right-of-use lease assets

 

657,044

 

 

 

 

 

Goodwill

 

24,184

 

 

24,239

 

 

24,255

 

Deferred income taxes and other non-current assets

 

63,413

 

 

63,953

 

 

61,319

 

Total assets

 

$

2,694,744

 

 

$

2,084,711

 

 

$

1,881,157

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

110,513

 

 

$

95,533

 

 

$

110,523

 

Accrued inventory liabilities

 

8,778

 

 

16,241

 

 

12,597

 

Accrued compensation and related expenses

 

100,735

 

 

109,181

 

 

62,794

 

Current lease liabilities

 

130,182

 

 

 

 

 

Current income taxes payable

 

5,090

 

 

67,412

 

 

3,021

 

Unredeemed gift card liability

 

79,629

 

 

99,412

 

 

64,420

 

Revolving credit facility

 

 

 

 

 

100,000

 

Other current liabilities

 

117,682

 

 

112,698

 

 

95,806

 

Total current liabilities

 

552,609

 

 

500,477

 

 

449,161

 

Non-current lease liabilities

 

568,311

 

 

 

 

 

Non-current income taxes payable

 

48,226

 

 

42,099

 

 

44,078

 

Deferred income tax liability

 

14,114

 

 

14,249

 

 

1,582

 

Other non-current liabilities

 

4,105

 

 

81,911

 

 

66,121

 

Stockholders' equity

 

1,507,379

 

 

1,445,975

 

 

1,320,215

 

Total liabilities and stockholders' equity

 

$

2,694,744

 

 

$

2,084,711

 

 

$

1,881,157

 

 

lululemon athletica inc.
Condensed Consolidated Statements of Cash Flows
Unaudited; Expressed in thousands

 

 

 

Two Quarters Ended

 

 

August 4, 2019

 

July 29, 2018

Cash flows from operating activities

 

 

 

 

Net income

 

$

221,593

 

 

$

170,923

 

Adjustments to reconcile net income to net cash provided by operating activities

 

(171,551

)

 

39,103

 

Net cash provided by operating activities

 

50,042

 

 

210,026

 

Net cash used in investing activities

 

(131,969

)

 

(89,292

)

Net cash used in financing activities

 

(170,985

)

 

(300,239

)

Effect of exchange rate changes on cash

 

(4,670

)

 

(33,155

)

Decrease in cash and cash equivalents

 

(257,582

)

 

(212,660

)

Cash and cash equivalents, beginning of period

 

881,320

 

 

990,501

 

Cash and cash equivalents, end of period

 

$

623,738

 

 

$

777,841

 

 

lululemon athletica inc.
Reconciliation of Non-GAAP Financial Measures
Unaudited

Constant dollar changes in net revenue

The below changes in net revenue show the change for the quarter ended August 4, 2019 compared to the quarter ended July 29, 2018.

 

 

Net Revenue

Change

 

22

%

Adjustments due to foreign exchange rate changes

 

1

 

Change in constant dollars

 

23

%

 

Constant dollar changes in total comparable sales, comparable store sales, direct to consumer net revenue

Due to the 53rd week in fiscal 2018, the below changes in total comparable sales, comparable store sales, and direct to consumer net revenue are calculated on a one week shifted basis such that the 13 weeks ended August 4, 2019 are compared to the 13 weeks ended August 5, 2018 rather than July 29, 2018.

 

 

Total
Comparable
Sales1,2

 

Comparable
Store Sales2

 

Direct to
Consumer Net
Revenue

Change

 

15

%

 

10

%

 

30

%

Adjustments due to foreign exchange rate changes

 

2

 

 

1

 

 

1

 

Change in constant dollars

 

17

%

 

11

%

 

31

%

 

__________

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 full fiscal months, or open for at least 12 full fiscal months after being significantly expanded.

 

lululemon athletica inc.
Company-operated Store Count and Square Footage1
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 2018

 

415

 

11

 

 

426

4th Quarter 2018

 

426

 

16

 

2

 

440

1st Quarter 2019

 

440

 

15

 

 

455

2nd Quarter 2019

 

455

 

5

 

 

460

 

 

Total Gross
Square Feet at
the Beginning of
the Quarter

 

Gross Square
Feet Added
During the
Quarter2

 

Gross Square
Feet Lost During the
Quarter2

 

Total Gross
Square Feet at
the End of the
Quarter

3rd Quarter 2018

 

1,303

 

52

 

1

 

1,354

4th Quarter 2018

 

1,354

 

77

 

5

 

1,426

1st Quarter 2019

 

1,426

 

40

 

 

1,466

2nd Quarter 2019

 

1,466

 

56

 

 

1,522

__________

1

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

2

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.

 

Source: lululemon athletica inc.

Investors:
lululemon athletica inc.
Howard Tubin
1-604-732-6124

or

ICR, Inc.
Joseph Teklits/Caitlin Morahan
1-203-682-8200

Media:
lululemon athletica inc.
Erin Hankinson
1-604-732-6124

or

Brunswick Group
Eleanor French
1-415-671-7676