lululemon athletica inc. Announces First Quarter Fiscal 2017 Results and Plan to Restructure Its ivivva Operations
The Company reported diluted earnings per share of
The Company plans to operate ivivva, its activewear brand for girls, as
a primarily e-commerce focused business, with a select number of stores
in key communities across
It is anticipated that the closures and restructuring will be
substantially complete by the end of the third quarter of fiscal 2017.
In connection with this restructuring plan, the Company recognized
pre-tax costs totaling
The summary below provides both GAAP and adjusted non-GAAP financial measures. The adjusted financial measures exclude the impact of the ivivva restructuring plan and the related tax effects, and also exclude certain discrete tax items which were recognized during the first quarter of fiscal 2016.
For the first quarter ended
Net revenue was
$520.3 million, an increase of 5% compared to the first quarter of fiscal 2016. On a constant dollar basis, net revenue increased 5%.
- Total comparable sales decreased 1%, or decreased by 1% on a constant dollar basis.
- Comparable store sales decreased 2%, or decreased by 1% on a constant dollar basis.
- Direct to consumer net revenue was flat, and was flat on a constant dollar basis.
Gross profit was
$256.9 million, an increase of 7% compared to the first quarter of fiscal 2016. Adjusted gross profit was $262.3 million, an increase of 10%.
- Gross margin was 49.4%, an increase of 110 basis points compared to the first quarter of fiscal 2016. Adjusted gross margin was 50.4%, an increase of 210 basis points.
Income from operations was
$45.4 million, a decrease of 21% compared to the first quarter of fiscal 2016. Adjusted income from operations was $63.2 million, an increase of 10%.
- Operating margin was 8.7%, a decrease of 290 basis points compared to the first quarter of fiscal 2016. Adjusted operating margin was 12.1%, an increase of 50 basis points.
Income tax expense was
$15.1 millioncompared to $11.8 millionin the first quarter of fiscal 2016 and the effective tax rate was 32.6% compared to 20.6%. The adjusted effective tax rate was 30.8% compared to 29.8% in the first quarter of fiscal 2016.
Diluted earnings per share were
$0.23compared to $0.33in the first quarter of fiscal 2016. Adjusted diluted earnings per share were $0.32compared to $0.30for the first quarter of fiscal 2016.
The Company ended the first quarter of fiscal 2017 with
In connection with the restructuring of the ivivva operations, we expect
to recognize total pre-tax costs of between
For the second quarter of fiscal 2017, we expect net revenue to be in
the range of
For the full fiscal 2017, we now expect net revenue to be in the range
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 first quarter results is scheduled for
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 changes in 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, effective tax rates, and diluted earnings per share exclude the costs recognized in connection with the plan to restructure the ivivva operations, its related tax effects, and certain discrete items related to the Company's transfer pricing arrangements and taxes on repatriation of foreign earnings. We believe these adjusted financial results and measures provide useful information because these items do not directly relate to our ongoing business operations and therefore do not contribute to a meaningful evaluation of the Company's future operating performance. Furthermore, we believe these adjusted financial results and metrics 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.
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
Condensed Consolidated Statements of Operations
Unaudited; Expressed in thousands, except per share amounts
|Costs of goods sold||263,412||256,385|
|As a percent of net revenue||49.4||%||48.3||%|
|Selling, general and administrative expenses||199,141||181,542|
|As a percent of net revenue||38.3||%||36.6||%|
|Asset impairments and restructuring costs||12,331||—|
|As a percent of net revenue||2.4||%||—||%|
|Income from operations||45,423||57,589|
|As a percent of net revenue||8.7||%||11.6||%|
|Other income (expense), net||907||(486||)|
|Income before income tax expense||46,330||57,103|
|Income tax expense||15,084||11,767|
|Basic earnings per share||$||0.23||$||0.33|
|Diluted earnings per share||$||0.23||$||0.33|
|Basic weighted-average shares outstanding||137,037||137,263|
|Diluted weighted-average shares outstanding||137,192||137,496|
Condensed Consolidated Balance Sheets
Unaudited; Expressed in thousands
|Cash and cash equivalents||$||698,289||$||734,846|
|Prepaid and receivable income taxes||76,231||81,190|
|Other current assets||54,211||48,269|
|Total current assets||1,132,681||1,162,737|
|Property and equipment, net||398,833||423,499|
|Deferred income taxes and other non-current assets||53,572||46,748|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Accrued inventory liabilities||20,610||8,601|
|Accrued compensation and related expenses||39,076||55,238|
|Income taxes payable||26,951||30,290|
|Unredeemed gift card liability||59,398||70,454|
|Other accrued liabilities||51,405||52,020|
|Total current liabilities||205,973||241,449|
|Deferred income tax liability||6,950||7,262|
|Other non-current liabilities||48,724||48,857|
|Total liabilities and stockholders' equity||$||1,609,334||$||1,657,541|
Condensed Consolidated Statements of Cash Flows
Unaudited; Expressed in thousands
|Cash flows from operating activities|
|Items not affecting cash||40,804||22,966|
|Changes in operating assets and liabilities||(52,650||)||(28,275||)|
|Net cash provided by operating activities||19,400||40,027|
|Net cash used in investing activities||(19,879||)||(26,644||)|
|Net cash used in financing activities||(14,487||)||(13,622||)|
|Effect of exchange rate changes on cash||(21,591||)||48,803|
|(Decrease) increase in cash and cash equivalents||(36,557||)||48,564|
|Cash and cash equivalents, beginning of period||734,846||501,482|
|Cash and cash equivalents, end of period||$||698,289||$||550,046|
Reconciliation of Non-GAAP Financial Measures
Unaudited; Expressed in thousands, except per share amounts
Constant dollar changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue
The below changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue show the net change for the first quarter of fiscal 2017 compared to the first quarter of fiscal 2016.
Change in Net
|Adjustments due to foreign exchange rate changes||—||—||1||—|
|Increase (decrease) in constant dollars||5||%||(1||)%||(1||)%||—||%|
1Total comparable sales includes comparable store sales and direct to consumer sales.
2Comparable store sales reflects net revenue from company-operated stores that have been open for at least 12 months, or open for at least 12 months after being significantly expanded.
Adjusted financial measures
The following table reconciles adjusted financial measures with the most directly comparable measures calculated in accordance with GAAP:
|Costs of goods sold1||263,412||(5,419||)||257,993||256,385||—||256,385|
|As a percent of net revenue1||49.4||%||1.0||%||50.4||%||48.3||%||—||%||48.3||%|
|Selling, general and administrative expenses||199,141||—||199,141||181,542||—||181,542|
|As a percent of net revenue||38.3||%||—||%||38.3||%||36.6||%||—||%||36.6||%|
|Impairment and restructuring costs2||12,331||(12,331||)||—||—||—||—|
|As a percent of net revenue2||2.4||%||(2.4||)%||—||%||—||%||—||%||—||%|
|Income from operations1,2||45,423||17,750||63,173||57,589||—||57,589|
|As a percent of net revenue1,2||8.7||%||3.4||%||12.1||%||11.6||%||—||%||11.6||%|
|Other income (expense), net3||907||—||907||(486||)||1,240||754|
|Income before income tax expense1,2,3||46,330||17,750||64,080||57,103||1,240||58,343|
|Income tax expense3,4||15,084||4,684||19,768||11,767||5,644||17,411|
|Effective tax rate3,4||32.6||%||30.8||%||20.6||%||29.8||%|
|Diluted earnings per share1,2,3,4||$||0.23||$||0.09||$||0.32||$||0.33||$||(0.03||)||$||0.30|
1 During the first quarter of fiscal 2017, we recognized
2 During the first quarter of fiscal 2017, we recognized
long-lived asset impairment charges of
3 The adjustments in the first quarter of fiscal 2016 relate to our transfer pricing arrangements and the associated repatriation of foreign earnings.
4 The adjustment to income tax expense for the first 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 7 and 9 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
Adjusted expected effective tax rate and diluted earnings per share
Fiscal Year Ending
|Expected effective tax rate||36.6||%||31.6||%|
|Adjusted expected effective tax rate||31.0||%||31.0||%|
Fiscal Year Ending
|Expected diluted earnings per share range||
|Adjusted expected diluted earnings per share range||
1 These adjustments relate to our plan to restructure our
ivivva operations. Please refer to Item 5 of Part II of our Report on
Form 10-Q to be filed with the
Store Count and Square Footage1
Square Footage Expressed in Thousands
|2nd Quarter 2016||373||6||—||379|
|3rd Quarter 2016||379||12||2||389|
|4th Quarter 2016||389||17||—||406|
|1st Quarter 2017||406||5||—||411|
|2nd Quarter 2016||1,095||22||—||1,117|
|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|
1Store 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.
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.
3As part of the plan to restructure its ivivva operations the
Company plans on closing approximately 40 of the 55 ivivva branded
company-operated stores which were in operation as at
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