lululemon athletica inc. Announces Third Quarter Fiscal 2019 Results

<<  Back

lululemon athletica inc. Announces Third Quarter Fiscal 2019 Results

Dec 11, 2019

Revenue up 23% to $916 million

Comparable sales increase 16%, or 17% on a constant dollar basis

Diluted EPS of $0.96 for the third quarter

VANCOUVER, British Columbia--(BUSINESS WIRE)--Dec. 11, 2019-- lululemon athletica inc. (NASDAQ:LULU) today announced financial results for the third quarter of fiscal 2019.

The summary below provides both GAAP and adjusted non-GAAP financial measures. The adjusted financial measures exclude the tax expense recognized during the third quarter of fiscal 2018 related to the U.S. Tax Cuts and Jobs Act.

For the third quarter ended November 3, 2019:

  • Net revenue was $916.1 million, an increase of 23% compared to the third quarter of fiscal 2018. On a constant dollar basis, net revenue increased 23%.
  • Total comparable sales increased 16%, 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 29%, or increased 30% on a constant dollar basis.
  • Direct to consumer net revenue represented 26.9% of total net revenue compared to 25.3% for the third quarter of fiscal 2018.
  • Gross profit was $505.0 million, an increase of 24% compared to the third quarter of fiscal 2018.
  • Gross margin was 55.1%, an increase of 70 basis points compared to the third quarter of fiscal 2018.
  • Income from operations was $175.8 million, an increase of 29% compared to the third quarter of fiscal 2018.
  • Operating margin was 19.2%, an increase of 100 basis points compared to the third quarter of fiscal 2018.
  • Income tax expense was $51.8 million compared to $43.5 million in the third quarter of fiscal 2018 and the effective tax rate was 29.1% compared to 31.6%. The adjusted effective tax rate for the third quarter of fiscal 2018 was 27.8%.
  • Diluted earnings per share were $0.96 compared to $0.71 in the third quarter of fiscal 2018. Adjusted diluted earnings per share for the third quarter of fiscal 2018 were $0.75.
  • The Company repurchased 44.5 thousand shares of its own common stock at an average cost of $179.71 per share.

The Company ended the third quarter of fiscal 2019 with $586.2 million in cash and cash equivalents compared to $703.6 million at the end of the third quarter of fiscal 2018. Inventories at the end of the third quarter of fiscal 2019 increased 26% to $627.1 million compared to $496.0 million at the end of the third quarter of fiscal 2018. The Company ended the quarter with 479 stores.

Calvin McDonald, Chief Executive Officer, commented: "We're proud of the continued momentum in our business as we live into our vision to be an experiential brand. We are successfully executing on our Power of Three growth plan as we create authentic connections with new and existing guests around the world. I'd like to thank our amazing teams for achieving this strong level of performance."

Updated Outlook

For the fourth quarter of fiscal 2019, we expect net revenue to be in the range of $1.315 billion to $1.330 billion based on a total comparable sales increase in the low double digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $2.10 to $2.13 for the quarter. This guidance assumes 131 million diluted weighted-average shares outstanding and a 28.5% 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 $3.895 billion to $3.910 billion based on a total comparable sales increase in the mid teens on a constant dollar basis. Diluted earnings per share are expected to be in the range of $4.75 to $4.78 for the full year, based on a 28% 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 third quarter of fiscal 2019, the 13 weeks ended November 3, 2019 are compared to the 13 weeks ended November 4, 2018 rather than October 28, 2018.

Conference Call Information

A conference call to discuss third quarter results is scheduled for today, December 11, 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, direct to consumer net revenue, and 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 income tax expense, effective tax rates, and diluted earnings per share exclude the amounts recognized in connection with the U.S. tax reform. 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; suppliers or manufacturers not complying with our Vendor Code of Ethics or applicable laws; 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

 

Three Quarters Ended

 

 

November 3,
2019

 

October 28,
2018

 

November 3,
2019

 

October 28,
2018

Net revenue

 

$

916,138

 

 

$

747,655

 

 

$

2,581,805

 

 

$

2,120,861

 

Costs of goods sold

 

411,094

 

 

340,878

 

 

1,169,245

 

 

973,157

 

Gross profit

 

505,044

 

 

406,777

 

 

1,412,560

 

 

1,147,704

 

As a percent of net revenue

 

55.1

%

 

54.4

%

 

54.7

%

 

54.1

%

Selling, general and administrative expenses

 

329,215

 

 

270,874

 

 

939,937

 

 

773,288

 

As a percent of net revenue

 

35.9

%

 

36.2

%

 

36.4

%

 

36.5

%

Income from operations

 

175,829

 

 

135,903

 

 

472,623

 

 

374,416

 

As a percent of net revenue

 

19.2

%

 

18.2

%

 

18.3

%

 

17.7

%

Other income (expense), net

 

1,925

 

 

2,044

 

 

6,154

 

 

6,553

 

Income before income tax expense

 

177,754

 

 

137,947

 

 

478,777

 

 

380,969

 

Income tax expense

 

51,772

 

 

43,534

 

 

131,202

 

 

115,633

 

Net income

 

$

125,982

 

 

$

94,413

 

 

$

347,575

 

 

$

265,336

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.97

 

 

$

0.71

 

 

$

2.67

 

 

$

1.98

 

Diluted earnings per share

 

$

0.96

 

 

$

0.71

 

 

$

2.65

 

 

$

1.97

 

Basic weighted-average shares outstanding

 

130,282

 

 

132,406

 

 

130,420

 

 

133,964

 

Diluted weighted-average shares outstanding

 

130,805

 

 

133,077

 

 

130,975

 

 

134,512

 

lululemon athletica inc.

Condensed Consolidated Balance Sheets

Unaudited; Expressed in thousands

 

 

November 3,
2019

 

February 3,
2019

 

October 28,
2018

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

586,153

 

 

$

881,320

 

 

$

703,607

 

Inventories

 

627,102

 

 

404,842

 

 

495,991

 

Prepaid and receivable income taxes

 

126,715

 

 

49,385

 

 

76,593

 

Other current assets

 

111,706

 

 

93,735

 

 

87,276

 

Total current assets

 

1,451,676

 

 

1,429,282

 

 

1,363,467

 

Property and equipment, net

 

656,372

 

 

567,237

 

 

531,250

 

Right-of-use lease assets

 

652,492

 

 

 

 

 

Goodwill

 

24,478

 

 

24,239

 

 

24,237

 

Deferred income taxes and other non-current assets

 

70,126

 

 

63,953

 

 

62,057

 

Total assets

 

$

2,855,144

 

 

$

2,084,711

 

 

$

1,981,011

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

116,281

 

 

$

95,533

 

 

$

153,140

 

Accrued inventory liabilities

 

10,074

 

 

16,241

 

 

11,446

 

Accrued compensation and related expenses

 

98,442

 

 

109,181

 

 

85,446

 

Current lease liabilities

 

131,385

 

 

 

 

 

Current income taxes payable

 

12,351

 

 

67,412

 

 

24,545

 

Unredeemed gift card liability

 

75,025

 

 

99,412

 

 

63,474

 

Other current liabilities

 

131,211

 

 

112,698

 

 

105,620

 

Total current liabilities

 

574,769

 

 

500,477

 

 

443,671

 

Non-current lease liabilities

 

563,925

 

 

 

 

 

Non-current income taxes payable

 

48,226

 

 

42,099

 

 

54,112

 

Deferred income tax liability

 

14,190

 

 

14,249

 

 

1,582

 

Other non-current liabilities

 

5,298

 

 

81,911

 

 

74,889

 

Stockholders' equity

 

1,648,736

 

 

1,445,975

 

 

1,406,757

 

Total liabilities and stockholders' equity

 

$

2,855,144

 

 

$

2,084,711

 

 

$

1,981,011

 

lululemon athletica inc.

Condensed Consolidated Statements of Cash Flows

Unaudited; Expressed in thousands

 

 

Three Quarters Ended

 

 

November 3,
2019

 

October 28,
2018

Cash flows from operating activities

 

 

 

 

Net income

 

$

347,575

 

 

$

265,336

 

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

 

(252,469

)

 

51,540

 

Net cash provided by operating activities

 

95,106

 

 

316,876

 

Net cash used in investing activities

 

(212,475

)

 

(165,914

)

Net cash used in financing activities

 

(179,555

)

 

(406,361

)

Effect of exchange rate changes on cash

 

1,757

 

 

(31,495

)

Decrease in cash and cash equivalents

 

(295,167

)

 

(286,894

)

Cash and cash equivalents, beginning of period

 

881,320

 

 

990,501

 

Cash and cash equivalents, end of period

 

$

586,153

 

 

$

703,607

 

lululemon athletica inc.

Reconciliation of Non-GAAP Financial Measures

Unaudited; Expressed in thousands, except per share amounts

 

Constant dollar changes in net revenue

The below changes in net revenue show the change for the quarter ended November 3, 2019 compared to the quarter ended October 28, 2018.

 

 

Net Revenue

Change

 

23

%

Adjustments due to foreign exchange rate changes

 

 

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 November 3, 2019 are compared to the 13 weeks ended November 4, 2018 rather than October 28, 2018.

 

 

Total
Comparable
Sales1,2

 

Comparable
Store Sales2

 

Direct to
Consumer Net
Revenue

Change

 

16

%

 

10

%

 

29

%

Adjustments due to foreign exchange rate changes

 

1

 

 

1

 

 

1

 

Change in constant dollars

 

17

%

 

11

%

 

30

%

______________

1Total comparable sales includes comparable store sales and direct to consumer sales.

2Comparable 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.

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 U.S. tax reform. Please refer to Note 8 of 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 December 11, 2019 for further information on these adjustments.

 

 

Quarter Ended
October 28, 2018

 

 

GAAP Results

 

U.S. Tax
Reform

 

Adjusted
Results
(Non-GAAP)

Income tax expense

 

$

43,534

 

 

$

(5,163

)

 

$

38,371

 

Effective tax rate

 

31.6

%

 

(3.8

)%

 

27.8

%

Diluted earnings per share

 

$

0.71

 

 

$

0.04

 

 

$

0.75

 

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

4th Quarter 2018

 

426

 

 

16

 

 

2

 

 

440

 

1st Quarter 2019

 

440

 

 

15

 

 

 

 

455

 

2nd Quarter 2019

 

455

 

 

5

 

 

 

 

460

 

3rd Quarter 2019

 

460

 

 

21

 

 

2

 

 

479

 

 

 

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

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

 

3rd Quarter 2019

 

1,522

 

 

87

 

 

5

 

 

1,604

_________

1Company-operated store count and square footage summary excludes retail locations operated by third parties under license and supply arrangements.

2Gross 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