lululemon athletica, inc.
Aug 31, 2017

lululemon athletica inc. Announces Second Quarter Fiscal 2017 Results

VANCOUVER, British Columbia--(BUSINESS WIRE)-- lululemon athletica inc. (NASDAQ:LULU) today announced financial results for the second quarter ended July 30, 2017.

The Company reported diluted earnings per share of $0.36 for the second quarter of fiscal 2017. Excluding the impact of the ivivva restructuring that was announced on June 1, 2017, the Company reported adjusted diluted earnings per share of $0.39.

The summary below provides both GAAP and adjusted non-GAAP financial measures. In connection with the restructuring of its ivivva operations, the Company recognized pre-tax costs totaling $5.4 million in the second quarter of fiscal 2017. The adjusted financial measures exclude the impact of the ivivva restructuring and the related tax effects, and also exclude certain discrete tax items which were recognized during the second quarter of fiscal 2016.

For the second quarter ended July 30, 2017:

The Company ended the second quarter of fiscal 2017 with $721.2 million in cash and cash equivalents compared to $535.3 million at the end of the second quarter of fiscal 2016. Inventories at the end of the second quarter of fiscal 2017 increased by 14% to $316.4 million compared to $277.3 million at the end of the second quarter of fiscal 2016. The Company ended the quarter with 421 stores.

Laurent Potdevin, CEO, lululemon, commented: "Our performance reflects the growing global consumer response to lululemon's unique position as the leading brand that defines an active, mindful lifestyle. Through continuing to deliver category-defining product innovation, we are creating experiences that our guests, both existing and new, desire. This strong brand momentum reinforces my confidence in our long-term strategy."

Mr. Potdevin added: "The acceleration that we have seen across the business in the second quarter enables us to take another positive step on our path towards achieving $4 billion in revenue by 2020. Finally, I would also like to express my gratitude for the constant energy and determination of our teams and ambassadors, who powerfully bring our brand to life."

Updated Outlook

In connection with the restructuring of the ivivva operations, we expect to recognize total pre-tax costs of between $50.0 million and $60.0 million in fiscal 2017, inclusive of $23.2 million recognized during the first two quarters of fiscal 2017. This primarily relates to long-lived asset impairment and lease termination costs.

For the third quarter of fiscal 2017, we expect net revenue to be in the range of $605 million to $615 million based on a total comparable sales increase in the mid-single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $0.33 to $0.35 for the quarter. Excluding the impact of the ivivva restructuring, we expect adjusted diluted earnings per share to be in the range of $0.50 to $0.52 for the quarter. This guidance assumes 136.3 million diluted weighted-average shares outstanding and a 32.2% tax rate, or 30.4% excluding the tax effect of the ivivva restructuring. The guidance does not reflect potential future repurchases of the Company's shares.

For the full fiscal 2017, we now expect net revenue to be in the range of $2.545 billion to $2.595 billion based on a total comparable sales increase in the low-single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $2.04 to $2.11 for the full year. Excluding the impact of the ivivva restructuring, we expect adjusted diluted earnings per share to be in the range of $2.35 to $2.42 for the year. This guidance assumes 136.3 million diluted weighted-average shares outstanding and a 30.8% tax rate, or 30.3% excluding the tax effect of the ivivva restructuring. 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.

Conference Call Information

A conference call to discuss second quarter results is scheduled for today, August 31, 2017, 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, with products that create transformational experiences for people to live happy, healthy, fun lives. 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 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, 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, effective tax rates, and diluted earnings per share exclude the costs recognized in connection with the restructuring of our ivivva operations, its related tax effects, and certain discrete items related to our transfer pricing arrangements and taxes on repatriation of foreign earnings. 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 contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risks, uncertainties and assumptions, such as statements regarding our future financial condition or results of operations and our prospects and strategies for future growth. 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 customer 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 customer expectations if we have problems with our distribution system; imitation by our competitors; higher than anticipated costs and our ability to realize the benefits associated with the restructuring of our ivivva business; our ability to protect our intellectual property rights; changes in tax laws or unanticipated tax liabilities, capital or financing needs in the United States, or our intentions with respect to the reinvestment of foreign earnings; 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; our ability to successfully open new store locations in a timely manner; our ability to source our merchandise profitably or at all; our ability to comply with trade and other regulations; the continued service of our senior management; seasonality; fluctuations in foreign currency exchange rates; the operations of many of our suppliers are subject to international and other risks; our exposure to various types of litigation; actions of activist stockholders; 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 30, 2017     July 31, 2016 July 30, 2017     July 31, 2016
Net revenue $ 581,054 $ 514,520 $ 1,101,361 $ 1,010,036
Costs of goods sold 283,632   260,359   547,044   516,744  
Gross profit 297,422 254,161 554,317 493,292
As a percent of net revenue 51.2 % 49.4 % 50.3 % 48.8 %
Selling, general and administrative expenses 225,524 180,202 424,665 361,744
As a percent of net revenue 38.8 % 35.0 % 38.6 % 35.8 %
Asset impairments and restructuring costs 3,186 15,517
As a percent of net revenue 0.6 % % 1.3 % %
Income from operations 68,712 73,959 114,135 131,548
As a percent of net revenue 11.8 % 14.4 % 10.4 % 13.0 %
Other income (expense), net 812   578   1,719   92  
Income before income tax expense 69,524 74,537 115,854 131,640
Income tax expense 20,813   20,912   35,897   32,679  
Net income $ 48,711   $ 53,625   $ 79,957   $ 98,961  
 
Basic earnings per share $ 0.36 $ 0.39 $ 0.59 $ 0.72
Diluted earnings per share $ 0.36 $ 0.39 $ 0.58 $ 0.72
Basic weighted-average shares outstanding 136,171 136,987 136,604 137,071
Diluted weighted-average shares outstanding 136,303 137,229 136,747 137,309
 
       

lululemon athletica inc.

Condensed Consolidated Balance Sheets

Unaudited; Expressed in thousands

 
July 30,
2017
January 29,
2017
ASSETS
Current assets
Cash and cash equivalents $ 721,212 $ 734,846
Inventories 316,368 298,432
Prepaid and receivable income taxes 66,161 81,190
Other current assets 67,281   48,269
Total current assets 1,171,022 1,162,737
Property and equipment, net 426,961 423,499
Goodwill and intangible assets, net 24,749 24,557
Deferred income taxes and other non-current assets 64,191   46,748
Total assets $ 1,686,923   $ 1,657,541
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 19,049 $ 24,846
Accrued inventory liabilities 21,292 8,601
Accrued compensation and related expenses 47,920 55,238
Income taxes payable 6,519 30,290
Unredeemed gift card liability 56,170 70,454
Other accrued liabilities 73,341   52,561
Total current liabilities 224,291 241,990
Deferred income tax liability 7,668 7,262
Other non-current liabilities 57,155 48,316
Stockholders' equity 1,397,809   1,359,973
Total liabilities and stockholders' equity $ 1,686,923   $ 1,657,541
 
   

lululemon athletica inc.

Condensed Consolidated Statements of Cash Flows

Unaudited; Expressed in thousands

 
Two Quarters Ended
July 30, 2017     July 31, 2016
Cash flows from operating activities
Net income $ 79,957 $ 98,961
Items not affecting cash 71,872 47,809
Changes in operating assets and liabilities (49,791 ) (45,577 )
Net cash provided by operating activities 102,038 101,193
Net cash used in investing activities (49,889 ) (71,261 )
Net cash used in financing activities (91,910 ) (25,082 )
Effect of exchange rate changes on cash 26,127   29,018  
(Decrease) increase in cash and cash equivalents (13,634 ) 33,868
Cash and cash equivalents, beginning of period 734,846   501,482  
Cash and cash equivalents, end of period $ 721,212   $ 535,350  
 
 

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, 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, 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 2017 compared to the second quarter of fiscal 2016.

                   
Net Revenue

Total
Comparable
Sales1,2

Comparable
Store Sales2

Direct to
Consumer Net
Revenue

Direct to
Consumer Net
Revenue
Excluding the
Online
Warehouse
Sale

Increase (decrease) 13% 7% 2% 29% 15%
Adjustments due to foreign exchange rate changes 1 1
Increase (decrease) in constant dollars 13% 7% 2% 30% 16%
 
__________
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:

       
Quarter Ended
July 30, 2017
Quarter Ended
July 31, 2016
GAAP Results     Adjustments    

Adjusted
Results
(Non-GAAP)

GAAP Results     Adjustments    

Adjusted
Results
(Non-GAAP)

Gross profit1 $ 297,422 $ 2,244 $ 299,666 $ 254,161 $ $ 254,161
Gross margin1 51.2 % 0.4 % 51.6 % 49.4 % % 49.4 %
Income from operations1,2 68,712 5,430 74,142 73,959 73,959
Operating margin1,2 11.8 % 1.0 % 12.8 % 14.4 % % 14.4 %
Income before income tax expense1,2,3 69,524 5,430 74,954 74,537 270 74,807
Income tax expense3,4 20,813 1,390 22,203 20,912 1,926 22,838
Effective tax rate3,4 29.9 % (0.3 )% 29.6 % 28.1 % 2.4 % 30.5 %
Diluted earnings per share1,2,3,4 $ 0.36 $ 0.03 $ 0.39 $ 0.39 $ (0.01 ) $ 0.38
 
__________
1   During the second quarter of fiscal 2017, we recognized costs in cost of goods sold totaling $2.2 million to reduce the carrying value of certain ivivva branded inventories to their estimated net realizable value, to record the expected net loss on certain committed inventory purchases, and to record accelerated depreciation.
2 During the second quarter of fiscal 2017, we recognized costs in operating expenses totaling $3.2 million for severance, lease terminations and other costs related to the restructuring of our ivivva operations.
3 The adjustments in the second quarter of fiscal 2016 relate to our transfer pricing arrangements, the associated repatriation of foreign earnings, and net interest costs. These adjustments were recorded in income tax expense and other income (expense), net.
4 The adjustment to income tax expense for the second quarter of fiscal 2017 represents the tax effect of the ivivva related restructuring adjustments, calculated based on the expected annual tax rate of the applicable tax jurisdictions.
 

Please refer to Notes 6 and 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 31, 2017 for further explanation as to the nature of these items.

       

Adjusted expected gross margin, effective tax rate, and diluted earnings per share

 

Quarter Ending
October 29, 2017

Fiscal Year Ending
January 28, 2018
Expected gross margin 50.9 % 51.9 %
Non-GAAP adjustments1 0.2   0.3  
Adjusted expected gross margin 51.1 % 52.2 %
 
Quarter Ending
October 29, 2017
Fiscal Year Ending
January 28, 2018
Expected effective tax rate 32.2 % 30.8 %
Non-GAAP adjustments1 (1.8 ) (0.5 )
Adjusted expected effective tax rate 30.4 % 30.3 %
 
Quarter Ending
October 29, 2017
Fiscal Year Ending
January 28, 2018
Expected diluted earnings per share range $0.33 to $0.35 $2.04 to $2.11
Non-GAAP adjustments1 0.17   0.31  
Adjusted expected diluted earnings per share range $0.50 to $0.52 $2.35 to $2.42
__________
1   These adjustments relate to the restructuring of our ivivva operations. Please refer to Note 6 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 31, 2017 for further explanation as to the nature of these items.
 
               

lululemon athletica inc.

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
Quarter3

Number of
Stores Open
at the End of
the Quarter

3rd Quarter 2016 379 12 2 389
4th Quarter 2016 389 17 406
1st Quarter 2017 406 5 411
2nd Quarter 2017 411 11 1 421
 

Total Gross
Square Feet at
the Beginning
of the Quarter

Gross Square
Feet Added
During the
Quarter2

Gross Square
Feet Lost
During the
Quarter2, 3

Total Gross
Square Feet at
the End of the
Quarter

3rd Quarter 2016 1,117 32 5 1,144
4th Quarter 2016 1,144 47 1 1,190
1st Quarter 2017 1,190 14 1,204
2nd Quarter 2017 1,204 37 3 1,238
 
__________
1   Store count and square footage summary includes company-operated stores which are branded lululemon or ivivva. 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.
3 Subsequent to quarter end, on August 20, 2017, as part of the restructuring of its ivivva operations, the Company closed 47 of the 55 ivivva branded company-operated stores. Of the eight remaining ivivva branded stores, seven are expected to remain in operation and one is expected to be converted to a lululemon branded store.

Investors:
ICR, Inc.
Joseph Teklits/Caitlin Morahan
203-682-8200
or
Media:
Brunswick
Mike France/Laura Buchanan
917-676-5802 / +44 797 498 2492
or
lululemon athletica inc.
Allison Reid, +44 787 576 2283

Source: lululemon athletica inc.

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