Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 8-K
 
 CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
August 30, 2018
Date of Report (Date of earliest event reported)
 
 
lululemon athletica inc.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
001-33608
 
20-3842867
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
1818 Cornwall Avenue
Vancouver, British Columbia
Canada, V6J 1C7
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (604) 732-6124
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

 






Item 2.02.
Results of Operations and Financial Condition.
On August 30, 2018, lululemon athletica inc. (the "Company") issued a press release announcing its financial results for the second quarter ended July 29, 2018 and certain other information. A copy of the Company's press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference. As previously announced, the Company has scheduled a conference call for 4:30 p.m. Eastern time on August 30, 2018 to discuss its financial results.
Item 9.01.
Financial Statements and Exhibits.
 (d) Exhibits.
Exhibit No.
  
Description
 
99.1
  





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
lululemon athletica inc.
 
 
Dated: August 30, 2018
/s/ PATRICK J. GUIDO
 
Patrick J. Guido
 
Chief Financial Officer





EXHIBIT INDEX
 
Exhibit No.
  
Description
 
99.1
  
Press release issued on August 30, 2018.


Exhibit

Exhibit 99.1
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LULULEMON ATHLETICA INC. ANNOUNCES SECOND QUARTER FISCAL 2018 RESULTS
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
Vancouver, British Columbia – August 30, 2018 – 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."

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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

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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.

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Contacts:
Investor Contact:
lululemon athletica inc.
Howard Tubin
1-604-732-6124

or

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

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

or

Brunswick Group
Ash Spiegelberg
1-214-254-3790


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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



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lululemon athletica inc.
Condensed Consolidated Balance Sheets
Unaudited; Expressed in thousands 
 
 
July 29,
2018
 
January 28,
2018
 
July 30,
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



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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



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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
 %
__________
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 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
 July 29, 2018
 
Quarter Ended
 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



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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 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 Quarter3
 
Gross Square Feet Lost During the Quarter3
 
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

 __________
1Company-operated store count and square footage summary excludes retail locations operated by third parties under license and supply arrangements.
2The 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.
3Gross 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.


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