Document
false0001397187 0001397187 2019-12-11 2019-12-11


 
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
December 11, 2019
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: (604732-6124
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.005 per share
LULU
Nasdaq Global Select Market
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:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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
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.  

 





Item 2.02.
Results of Operations and Financial Condition.
On December 11, 2019, lululemon athletica inc. (the "Company") issued a press release announcing its financial results for the third quarter ended November 3, 2019 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 December 11, 2019 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: December 11, 2019
/s/ PATRICK J. GUIDO
 
Patrick J. Guido
 
Chief Financial Officer





EXHIBIT INDEX
 
Exhibit No.
  
Description
 
99.1
  
Press release issued on December 11, 2019.


Exhibit

Exhibit 99.1
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LULULEMON ATHLETICA INC. ANNOUNCES THIRD QUARTER FISCAL 2019 RESULTS
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 – December 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

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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.

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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.

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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
Eleanor French
1-415-671-7676


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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



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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



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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



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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
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



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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
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.


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