lululemon athletica, inc.
Mar 27, 2018

lululemon athletica inc. Announces Fourth Quarter and Full Year Fiscal 2017 Results

VANCOUVER, British Columbia--(BUSINESS WIRE)-- lululemon athletica inc. (NASDAQ:LULU) today announced financial results for the fourth quarter and fiscal year ended January 28, 2018.

The Company reported diluted earnings per share of $0.88 for the fourth quarter of fiscal 2017. Excluding the impact of the ivivva restructuring and the U.S. tax reform, the Company reported adjusted diluted earnings per share of $1.33.

The summary below provides both GAAP and adjusted non-GAAP financial measures. The adjusted financial measures exclude the impact of the ivivva restructuring, the provisional amounts recognized in connection with the U.S. tax reform, and certain other discrete tax items which were recognized during fiscal 2016.

For the fourth quarter ended January 28, 2018:

For the fiscal year ended January 28, 2018:

The Company ended fiscal 2017 with $990.5 million in cash and cash equivalents compared to $734.8 million at the end of fiscal 2016. Inventories at the end of fiscal 2017 increased by 10% to $329.6 million compared to $298.4 million at the end of fiscal 2016. The Company ended the year with 404 stores.

Glenn Murphy, Executive Chairman of the Board, commented: "We are pleased with our results for the fourth quarter and fiscal year 2017. The company continues to execute successfully on its global growth strategies and I would like to thank our entire team including Celeste, Stuart, and Sun for their leadership in driving this strong performance."

Stuart Haselden, Chief Operating Officer, also noted: "We are seeing strong momentum across our business as we now move into 2018, which is further positioning us to achieve our 2020 revenue goal of $4 billion. Importantly, we would like to thank our store educators, ambassadors, and the lululemon collective around the world for their energy and passion that is enabling our continued success."

Fiscal 2018 Outlook

For the first quarter of fiscal 2018, we expect net revenue to be in the range of $612 million to $617 million 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 $0.44 to $0.46 for the quarter. This guidance assumes 136.3 million diluted weighted-average shares outstanding and a 29.0% tax rate. The guidance does not reflect potential future repurchases of the Company's shares or any further adjustments which may be recognized in connection with the U.S. tax reform.

For the full fiscal 2018, we expect net revenue to be in the range of $2.985 billion to $3.022 billion based on a total comparable sales increase in the mid-to-high single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $3.00 to $3.08 for the full year. This guidance assumes 136.3 million diluted weighted-average shares outstanding and a 29.0% tax rate. The guidance does not reflect potential future repurchases of the Company's shares or any further adjustments which may be recognized in connection with the U.S. tax reform. Fiscal 2018 is a 53 week year.

Conference Call Information

A conference call to discuss fiscal 2017 results is scheduled for today, March 27, 2018, at 4:30 p.m. Eastern time. Those interested in participating in the call are invited to dial 1-855-327-6838 or 1-604-235-2082, 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, 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, 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 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, the amounts recognized in connection with the U.S. tax reform, 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 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; the continued service of our senior management and our ability to identify and attract our next Chief Executive Officer; 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; 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   Fiscal Year Ended

January 28,
2018

 

January 29,
2017

January 28,
2018

 

January 29,
2017

Net revenue $ 928,802 $ 789,940 $ 2,649,181 $ 2,344,392
Costs of goods sold 406,291   362,041   1,250,391   1,144,775  
Gross profit 522,511 427,899 1,398,790 1,199,617
As a percent of net revenue 56.3 % 54.2 % 52.8 % 51.2 %
Selling, general and administrative expenses 264,232 231,270 904,264 778,465
As a percent of net revenue 28.4 % 29.3 % 34.1 % 33.2 %
Asset impairments and restructuring costs 2,001 38,525
As a percent of net revenue 0.2 % % 1.5 % %
Income from operations 256,278 196,629 456,001 421,152
As a percent of net revenue 27.6 % 24.9 % 17.2 % 18.0 %
Other income (expense), net 1,226   857   3,997   1,577  
Income before income tax expense 257,504 197,486 459,998 422,729
Income tax expense 137,743   61,351   201,336   119,348  
Net income $ 119,761   $ 136,135   $ 258,662   $ 303,381  
 
Basic earnings per share $ 0.88 $ 0.99 $ 1.90 $ 2.21
Diluted earnings per share $ 0.88 $ 0.99 $ 1.90 $ 2.21
Basic weighted-average shares outstanding 135,381 137,059 135,988 137,086
Diluted weighted-average shares outstanding 135,723 137,245 136,198 137,302
 
 

lululemon athletica inc.

 

Condensed Consolidated Balance Sheets
Unaudited; Expressed in thousands

 
   

January 28,
2018

 

January 29,
2017

ASSETS
Current assets
Cash and cash equivalents $ 990,501 $ 734,846
Inventories 329,562 298,432
Prepaid and receivable income taxes 48,948 81,190
Other current assets 67,271   48,269
Total current assets 1,436,282 1,162,737
Property and equipment, net 473,642 423,499
Goodwill and intangible assets, net 24,679 24,557
Deferred income taxes and other non-current assets 63,880   46,748
Total assets $ 1,998,483   $ 1,657,541
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 24,646 $ 24,846
Accrued inventory liabilities 13,027 8,601
Accrued compensation and related expenses 70,141 55,238
Current income taxes payable 15,700 30,290
Unredeemed gift card liability 82,668 70,454
Lease termination liabilities 6,427
Other current liabilities 79,989   52,561
Total current liabilities 292,598 241,990
Non-current income taxes payable 48,268
Deferred income tax liability 1,336 7,262
Other non-current liabilities 59,321 48,316
Stockholders' equity 1,596,960   1,359,973
Total liabilities and stockholders' equity $ 1,998,483   $ 1,657,541
 
 

lululemon athletica inc.

 

Condensed Consolidated Statements of Cash Flows
Unaudited; Expressed in thousands

 
    Fiscal Year Ended

January 28,
2018

 

January 29,
2017

Cash flows from operating activities
Net income $ 258,662 $ 303,381
Adjustments to reconcile net income to net cash provided by operating activities 230,675   83,011  
Net cash provided by operating activities 489,337 386,392
Net cash used in investing activities (173,392 ) (149,511 )
Net cash used in financing activities (97,862 ) (26,611 )
Effect of exchange rate changes on cash 37,572   23,094  
Increase (decrease) in cash and cash equivalents 255,655 233,364
Cash and cash equivalents, beginning of year $ 734,846   $ 501,482  
Cash and cash equivalents, end of year $ 990,501   $ 734,846  
 

lululemon athletica inc.

Reconciliation of Non-GAAP Financial Measures
Unaudited

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

The below changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue show the net change for the fourth quarter of fiscal 2017 compared to the fourth quarter of fiscal 2016.

         

Change in Net
Revenue

Change in
Total
Comparable
Sales1,2

Change in
Comparable
Store Sales2

Change in
Direct to
Consumer Net
Revenue

Increase 18% 12% 2% 44%
Adjustments due to foreign exchange rate changes (2) (1) (1) (2)
Increase in constant dollars 16% 11% 1% 42%
 

The below changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue show the net change for fiscal 2017 compared to fiscal 2016.

         

Change in Net
Revenue

Change in
Total
Comparable
Sales1,2

Change in
Comparable
Store Sales2

Change in
Direct to
Consumer Net
Revenue

Increase 13% 7% 1% 27%
Adjustments due to foreign exchange rate changes (1)
Increase in constant dollars 12% 7% 1% 27%
 
__________
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 tables reconcile 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, the amounts recognized in connection with the U.S. tax reform, and certain discrete items related to our transfer pricing arrangements and taxes on repatriation of foreign earnings. Please refer to Notes 13 and 14 to the audited consolidated financial statements included in Item 8 of Part II of our Report on Form 10-K to be filed with the SEC on or about March 27, 2018 for further information on these adjustments.

 
Quarter Ended January 28, 2018

GAAP Results

  Adjustments  

Adjusted
Results
(Non-GAAP)

Restructuring
of ivivva
Operations

 

U.S. Tax
Reform

(In thousands, except per share amounts)
Gross profit $ 522,511 $ (143 ) $ $ 522,368
Gross margin 56.3 % (0.1 )% % 56.2 %
Income from operations 256,278 1,858 258,136
Operating margin 27.6 % 0.2 % % 27.8 %
Income before income tax expense 257,504 1,858 259,362
Income tax expense 137,743 855 (59,294 ) 79,304
Effective tax rate 53.5 % 0.1 % (23.0 )% 30.6 %
Diluted earnings per share $ 0.88 $ 0.01 $ 0.44 $ 1.33
 
 

Quarter Ended January 29, 2017

GAAP Results

Transfer
Pricing and
Repatriation
Tax
Adjustments

Adjusted
Results
(Non-GAAP)

(In thousands, except per share amounts)
Income before income tax expense 197,486 (557 ) 196,929
Income tax expense 61,351 (928 ) 60,423
Effective tax rate 31.1 % (0.5 )% 30.6 %
Diluted earnings per share $ 0.99 $ 0.01 $ 1.00
 
 
Fiscal Year Ended January 28, 2018

GAAP Results

  Adjustments  

Adjusted
Results
(Non-GAAP)

Restructuring
of ivivva
Operations

 

U.S. Tax
Reform

(In thousands, except per share amounts)
Gross profit $ 1,398,790 $ 8,698 $ $ 1,407,488
Gross margin 52.8 % 0.3 % % 53.1 %
Income from operations 456,001 47,223 503,224
Operating margin 17.2 % 1.8 % % 19.0 %
Income before income tax expense 459,998 47,223 507,221
Income tax expense 201,336 12,741 (59,294 ) 154,783
Effective tax rate 43.8 % (0.4 )% (12.9 )% 30.5 %
Diluted earnings per share $ 1.90 $ 0.25 $ 0.44 $ 2.59
 
 

Fiscal Year Ended January 29, 2017

GAAP Results

Transfer
Pricing and
Repatriation
Tax
Adjustments

Adjusted
Results
(Non-GAAP)

(In thousands, except per share amounts)
Income before income tax expense $ 422,729 $ 1,695 $ 424,424
Income tax expense 119,348 10,744 130,092
Effective tax rate 28.2 % 2.5 % 30.7 %
Diluted earnings per share $ 2.21 $ (0.07 ) $ 2.14
 
 

lululemon athletica inc.

 

Store Count and Square Footage1
Fifty-Two Weeks Ended January 28, 2018
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

1st Quarter 406 5 411
2nd Quarter 411 11 1 421
3rd Quarter 421 17 50 388
4th Quarter 388 16 404
 

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

1st Quarter 1,190 14 1,204
2nd Quarter 1,204 37 3 1,238
3rd Quarter 1,238 43 89 1,192
4th Quarter 1,192 70 1,262
 
 
__________
1   Store count and square footage summary includes company-operated stores which are branded lululemon and 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 On August 20, 2017, as part of the restructuring of its ivivva operations, the Company closed 48 of its 55 ivivva branded company-operated stores. The seven remaining ivivva branded stores remain in operation and are not expected to close.
 

Investors:
lululemon athletica inc.
Howard Tubin, 1-604-732-6124
or
ICR, Inc.
Joseph Teklits/Caitlin Morahan
1-203-682-8200
or
Media:
lululemon athletica inc.
Erin Hankinson, 1-604-732-6124
or
Brunswick Group
Ash Spiegelberg, 1-214-254-3790

Source: lululemon athletica inc.

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