ITEM 1.
FINANCIAL STATEMENTS
lululemon athletica inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited; Amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
2016
|
|
January 31,
2016
|
ASSETS
|
Current assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
535,350
|
|
|
$
|
501,482
|
|
Accounts receivable
|
|
10,196
|
|
|
13,108
|
|
Inventories
|
|
277,279
|
|
|
284,009
|
|
Prepaid and receivable income taxes
|
|
98,678
|
|
|
91,453
|
|
Other prepaid expenses and other current assets
|
|
41,180
|
|
|
26,987
|
|
|
|
962,683
|
|
|
917,039
|
|
Property and equipment, net
|
|
395,010
|
|
|
349,605
|
|
Goodwill and intangible assets, net
|
|
24,897
|
|
|
24,777
|
|
Deferred income tax assets
|
|
12,696
|
|
|
11,802
|
|
Other non-current assets
|
|
20,215
|
|
|
10,854
|
|
|
|
$
|
1,415,501
|
|
|
$
|
1,314,077
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
Current liabilities
|
|
|
|
|
Accounts payable
|
|
$
|
8,295
|
|
|
$
|
10,381
|
|
Accrued inventory liabilities
|
|
19,287
|
|
|
25,451
|
|
Accrued compensation and related expenses
|
|
39,495
|
|
|
43,524
|
|
Income taxes payable
|
|
33,592
|
|
|
37,736
|
|
Unredeemed gift card liability
|
|
46,181
|
|
|
57,736
|
|
Other accrued liabilities
|
|
50,588
|
|
|
50,676
|
|
|
|
197,438
|
|
|
225,504
|
|
Deferred income tax liabilities
|
|
11,198
|
|
|
10,759
|
|
Other non-current liabilities
|
|
50,663
|
|
|
50,332
|
|
|
|
259,299
|
|
|
286,595
|
|
Stockholders' equity
|
|
|
|
|
Undesignated preferred stock, $0.01 par value: 5,000 shares authorized; none issued and outstanding
|
|
—
|
|
|
—
|
|
Exchangeable stock, no par value: 60,000 shares authorized; 9,784 and 9,804 issued and outstanding
|
|
—
|
|
|
—
|
|
Special voting stock, $0.000005 par value: 60,000 shares authorized; 9,784 and 9,804 issued and outstanding
|
|
—
|
|
|
—
|
|
Common stock, $0.005 par value: 400,000 shares authorized; 127,258 and 127,482 issued and outstanding
|
|
636
|
|
|
637
|
|
Additional paid-in capital
|
|
257,710
|
|
|
245,533
|
|
Retained earnings
|
|
1,090,549
|
|
|
1,019,515
|
|
Accumulated other comprehensive loss
|
|
(192,693
|
)
|
|
(238,203
|
)
|
|
|
1,156,202
|
|
|
1,027,482
|
|
|
|
$
|
1,415,501
|
|
|
$
|
1,314,077
|
|
See accompanying notes to the unaudited interim consolidated financial statements
lululemon athletica inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited; Amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
July 31, 2016
|
|
Thirteen Weeks Ended
August 2, 2015
|
|
Twenty-Six Weeks Ended
July 31, 2016
|
|
Twenty-Six Weeks Ended
August 2, 2015
|
Net revenue
|
|
$
|
514,520
|
|
|
$
|
453,010
|
|
|
$
|
1,010,036
|
|
|
$
|
876,554
|
|
Cost of goods sold
|
|
260,359
|
|
|
240,985
|
|
|
516,744
|
|
|
458,652
|
|
Gross profit
|
|
254,161
|
|
|
212,025
|
|
|
493,292
|
|
|
417,902
|
|
Selling, general and administrative expenses
|
|
180,202
|
|
|
145,446
|
|
|
361,744
|
|
|
283,287
|
|
Income from operations
|
|
73,959
|
|
|
66,579
|
|
|
131,548
|
|
|
134,615
|
|
Other income (expense), net
|
|
578
|
|
|
842
|
|
|
92
|
|
|
1,371
|
|
Income before income tax expense
|
|
74,537
|
|
|
67,421
|
|
|
131,640
|
|
|
135,986
|
|
Income tax expense
|
|
20,912
|
|
|
19,753
|
|
|
32,679
|
|
|
40,508
|
|
Net income
|
|
$
|
53,625
|
|
|
$
|
47,668
|
|
|
$
|
98,961
|
|
|
$
|
95,478
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(28,052
|
)
|
|
(39,368
|
)
|
|
45,510
|
|
|
(16,762
|
)
|
Comprehensive income
|
|
$
|
25,573
|
|
|
$
|
8,300
|
|
|
$
|
144,471
|
|
|
$
|
78,716
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.39
|
|
|
$
|
0.34
|
|
|
$
|
0.72
|
|
|
$
|
0.67
|
|
Diluted earnings per share
|
|
$
|
0.39
|
|
|
$
|
0.34
|
|
|
$
|
0.72
|
|
|
$
|
0.67
|
|
Basic weighted-average number of shares outstanding
|
|
136,987
|
|
|
141,372
|
|
|
137,071
|
|
|
141,656
|
|
Diluted weighted-average number of shares outstanding
|
|
137,229
|
|
|
141,644
|
|
|
137,309
|
|
|
141,977
|
|
See accompanying notes to the unaudited interim consolidated financial statements
lululemon athletica inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited; Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchangeable Stock
|
|
Special Voting Stock
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Loss
|
|
Total
|
|
|
Shares
|
|
Shares
|
|
Par Value
|
|
Shares
|
|
Par Value
|
|
|
|
|
Balance at January 31, 2016
|
|
9,804
|
|
|
9,804
|
|
|
$
|
—
|
|
|
127,482
|
|
|
$
|
637
|
|
|
$
|
245,533
|
|
|
$
|
1,019,515
|
|
|
$
|
(238,203
|
)
|
|
$
|
1,027,482
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,961
|
|
|
|
|
98,961
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,510
|
|
|
45,510
|
|
Common stock issued upon exchange of exchangeable shares
|
|
(20
|
)
|
|
(20
|
)
|
|
—
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
—
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
8,126
|
|
|
|
|
|
|
8,126
|
|
Tax benefits from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
1,205
|
|
|
|
|
|
|
1,205
|
|
Common stock issued upon settlement of stock-based compensation
|
|
|
|
|
|
|
|
224
|
|
|
1
|
|
|
5,078
|
|
|
|
|
|
|
5,079
|
|
Shares withheld related to net share settlement of stock-based compensation
|
|
|
|
|
|
|
|
(25
|
)
|
|
—
|
|
|
(1,605
|
)
|
|
|
|
|
|
(1,605
|
)
|
Repurchase of common stock
|
|
|
|
|
|
|
|
(443
|
)
|
|
(2
|
)
|
|
(627
|
)
|
|
(27,927
|
)
|
|
|
|
(28,556
|
)
|
Balance at July 31, 2016
|
|
9,784
|
|
|
9,784
|
|
|
$
|
—
|
|
|
127,258
|
|
|
$
|
636
|
|
|
$
|
257,710
|
|
|
$
|
1,090,549
|
|
|
$
|
(192,693
|
)
|
|
$
|
1,156,202
|
|
See accompanying notes to the unaudited interim consolidated financial statements
lululemon athletica inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended
July 31, 2016
|
|
Twenty-Six Weeks Ended
August 2, 2015
|
Cash flows from operating activities
|
|
|
|
|
Net income
|
|
$
|
98,961
|
|
|
$
|
95,478
|
|
Items not affecting cash
|
|
|
|
|
Depreciation and amortization
|
|
39,683
|
|
|
32,791
|
|
Stock-based compensation expense
|
|
8,126
|
|
|
6,021
|
|
Tax benefits from stock-based compensation
|
|
(1,205
|
)
|
|
(649
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
Inventories
|
|
16,947
|
|
|
(74,010
|
)
|
Prepaid and receivable income taxes
|
|
(6,020
|
)
|
|
(13,614
|
)
|
Other prepaid expenses and other current assets
|
|
(9,595
|
)
|
|
(5,434
|
)
|
Accounts payable
|
|
(2,512
|
)
|
|
(1,809
|
)
|
Accrued inventory liabilities
|
|
(8,432
|
)
|
|
13,666
|
|
Accrued compensation and related expenses
|
|
(5,967
|
)
|
|
3,394
|
|
Income taxes payable
|
|
(6,948
|
)
|
|
(18,463
|
)
|
Unredeemed gift card liability
|
|
(12,679
|
)
|
|
(9,983
|
)
|
Other accrued liabilities
|
|
(1,060
|
)
|
|
2,828
|
|
Other non-current assets and liabilities
|
|
(9,311
|
)
|
|
1,945
|
|
Net cash provided by operating activities
|
|
99,988
|
|
|
32,161
|
|
Cash flows from investing activities
|
|
|
|
|
Purchase of property and equipment
|
|
(71,261
|
)
|
|
(65,118
|
)
|
Net cash used in investing activities
|
|
(71,261
|
)
|
|
(65,118
|
)
|
Cash flows from financing activities
|
|
|
|
|
Proceeds from settlement of stock-based compensation
|
|
5,079
|
|
|
4,121
|
|
Tax benefits from stock-based compensation
|
|
1,205
|
|
|
649
|
|
Taxes paid related to net share settlement of stock-based compensation
|
|
(1,605
|
)
|
|
(1,464
|
)
|
Repurchase of common stock
|
|
(28,556
|
)
|
|
(81,998
|
)
|
Registration fees associated with prospectus supplement
|
|
—
|
|
|
(145
|
)
|
Net cash used in financing activities
|
|
(23,877
|
)
|
|
(78,837
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
29,018
|
|
|
(11,423
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
33,868
|
|
|
(123,217
|
)
|
Cash and cash equivalents, beginning of period
|
|
$
|
501,482
|
|
|
$
|
664,479
|
|
Cash and cash equivalents, end of period
|
|
$
|
535,350
|
|
|
$
|
541,262
|
|
See accompanying notes to the unaudited interim consolidated financial statements
lululemon athletica inc.
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of operations
lululemon athletica inc., a Delaware corporation ("lululemon" and, together with its subsidiaries unless the context otherwise requires, the "Company") is engaged in the design, distribution, and retail of healthy lifestyle inspired athletic apparel, which is sold through a chain of company-operated stores, direct to consumer through e-commerce, outlets, showrooms, sales to wholesale accounts, warehouse sales, temporary locations, and through a license and supply arrangement. The Company operates stores in the United States, Canada, Australia, the United Kingdom, New Zealand, Singapore, Hong Kong, Germany, Puerto Rico, South Korea, and Switzerland. There were a total of
379
and
363
company-operated stores in operation as of
July 31, 2016
and
January 31, 2016
, respectively.
Basis of presentation
The unaudited interim consolidated financial statements as of
July 31, 2016
and for the
thirteen and twenty-six weeks ended July 31, 2016
and
August 2, 2015
are presented in United States dollars and have been prepared by the Company under the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial information is presented in accordance with United States generally accepted accounting principles ("GAAP") for interim financial information and, accordingly, does not include all of the information and footnotes required by GAAP for complete financial statements. The financial information as of
January 31, 2016
is derived from the Company's audited consolidated financial statements and related notes for the fiscal year ended
January 31, 2016
, which are included in Item 8 in the Company's fiscal
2015
Annual Report on Form 10-K filed with the SEC on
March 30, 2016
. These unaudited interim consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. These unaudited interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and related notes included in Item 8 in the Company's fiscal
2015
Annual Report on Form 10-K.
The Company's fiscal year ends on the Sunday closest to January 31 of the following year, typically resulting in a 52-week year, but occasionally giving rise to an additional week, resulting in a 53-week year. Fiscal
2016
will end on
January 29, 2017
and will be a 52-week year.
The Company's business is affected by the pattern of seasonality common to most retail apparel businesses. Historically, the Company has recognized a significant portion of its operating profit in the fourth fiscal quarter of each year as a result of increased net revenue during the holiday season.
Certain comparative figures have been reclassified to conform to the financial presentation adopted for the current year.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASC Topic 606,
Revenue from Contracts with Customers
("ASC 606"), which supersedes the revenue recognition requirements in ASC Topic 605
Revenue Recognition
, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. This guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and expands the related disclosure requirements. In 2015, the FASB deferred the effective date for this guidance, and in 2016, the FASB issued several updates that clarify the guidance in this topic. This guidance will be effective for the Company beginning in its first quarter of fiscal 2018, with early application permitted if adopted in its first quarter of fiscal 2017. The Company is currently evaluating the timing of adoption and the impact that this new guidance may have on its consolidated financial statements.
In June 2014, the FASB amended ASC Topic 718,
Compensation - Stock Compensation
("ASC 718") for share-based payments in which the terms of the award provide that a performance target can be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This guidance became effective for the Company beginning in its first quarter of fiscal 2016 and it was adopted prospectively. The adoption did not have an impact on the Company's consolidated financial statements.
In April 2015, the FASB amended ASC Subtopic 350-40,
Intangibles - Goodwill and Other - Internal-Use Software
("ASC 350-40") to provide guidance to customers about whether a cloud computing arrangement includes a software license. This guidance requires that if a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This guidance became effective for the Company beginning in its first quarter of fiscal 2016 and it was adopted prospectively. The adoption did not have a material impact on the Company's consolidated financial statements.
In July 2015, the FASB amended ASC Topic 330,
Inventory
("ASC 330") to simplify the measurement of inventory. The amendments require that an entity measure inventory at the lower of cost and net realizable value instead of the lower of cost and market. This guidance will be effective for the Company beginning in its first quarter of fiscal 2017, with early application permitted. The Company is currently evaluating the impact that this new guidance may have on its consolidated financial statements.
In February 2016 the FASB issued ASC Topic 842,
Leases
("ASC 842") to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet for most leases. This guidance will be effective for the Company beginning in its first quarter of fiscal 2019, with early application permitted. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements but it is expected that the adoption will result in a significant increase in assets and liabilities on the consolidated balance sheets.
In March 2016, the FASB amended ASC 718, simplifying the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new guidance also allows an entity to account for forfeitures when they occur. This guidance will be effective for the Company beginning in its first quarter of fiscal 2017, with early application permitted. The Company is currently evaluating the impact that this new guidance may have on its consolidated financial statements.
NOTE 3. STOCK-BASED COMPENSATION
Stock-based compensation plans
The Company's eligible employees participate in various stock-based compensation plans, which are provided by the Company directly.
Stock-based compensation expense charged to income for the plans was
$8.1 million
and
$6.0 million
for the
twenty-six weeks ended July 31, 2016
and
August 2, 2015
, respectively. Total unrecognized compensation cost for all stock-based compensation plans was
$49.1 million
at
July 31, 2016
, which is expected to be recognized over a weighted-average period of
2.5
years.
Company stock options, performance-based restricted stock units, restricted shares and restricted stock units
A summary of the Company's stock option, performance-based restricted stock unit, restricted share and restricted stock unit activity as of
July 31, 2016
, and changes during the
twenty-six week
period then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Performance-Based Restricted Stock Units
|
|
Restricted Shares
|
|
Restricted Stock Units
|
|
|
Number
|
|
Weighted-Average Exercise Price
|
|
Number
|
|
Weighted-Average Grant Date Fair Value
|
|
Number
|
|
Weighted-Average Grant Date Fair Value
|
|
Number
|
|
Weighted-Average Grant Date Fair Value
|
|
|
(In thousands, except per share amounts)
|
Balance at January 31, 2016
|
|
867
|
|
|
$
|
49.54
|
|
|
395
|
|
|
$
|
58.58
|
|
|
31
|
|
|
$
|
57.67
|
|
|
333
|
|
|
$
|
55.91
|
|
Granted
|
|
406
|
|
|
68.68
|
|
|
156
|
|
|
68.68
|
|
|
17
|
|
|
69.94
|
|
|
187
|
|
|
68.49
|
|
Exercised/vested
|
|
152
|
|
|
33.43
|
|
|
4
|
|
|
64.96
|
|
|
18
|
|
|
65.73
|
|
|
51
|
|
|
63.91
|
|
Forfeited
|
|
122
|
|
|
57.51
|
|
|
134
|
|
|
62.74
|
|
|
—
|
|
|
—
|
|
|
60
|
|
|
52.91
|
|
Balance at July 31, 2016
|
|
999
|
|
|
$
|
58.79
|
|
|
413
|
|
|
$
|
60.98
|
|
|
30
|
|
|
$
|
59.75
|
|
|
409
|
|
|
$
|
61.12
|
|
Exercisable at July 31, 2016
|
|
163
|
|
|
$
|
50.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of each stock option granted is estimated on date of grant using the Black-Scholes model. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and the Company's historical experience. The expected term of the options is based upon historical experience of similar awards, giving consideration to expectations of future employee behavior. Expected volatility is based upon the historical volatility of the Company's common stock for the period corresponding with the expected term of the options. The risk-free interest rate is based on the U.S. Treasury yield curve for the period corresponding with the expected term of the options. The following assumptions were used in calculating the fair value of stock options granted in fiscal
2016
:
|
|
|
|
|
|
|
Stock Options Granted During
Fiscal 2016
|
Expected term
|
|
4 years
|
|
Expected volatility
|
|
40.07
|
%
|
Risk-free interest rate
|
|
1.08
|
%
|
Dividend yield
|
|
—
|
%
|
The Company's performance-based restricted stock units are awarded to eligible employees and entitle the grantee to receive a maximum of
two
shares of common stock per performance-based restricted stock unit if the Company achieves specified performance goals and the grantee remains employed during the vesting period. The fair value of performance-based restricted stock units is based on the closing price of the Company's common stock on the award date. Expense for performance-based restricted stock units is recognized when it is probable that the performance goal will be achieved.
The fair value of the restricted shares and restricted stock units is based on the closing price of the Company's common stock on the award date.
Employee share purchase plan
The Company's board of directors and stockholders approved the Company's Employee Share Purchase Plan ("ESPP") in September 2007.
Contributions are made by eligible employees, subject to certain limits defined in the ESPP, and the Company matches one-third of the contribution.
The maximum number of shares available under the ESPP is
6.0 million
shares. During the
thirteen weeks ended July 31, 2016
, there were
31.6 thousand
shares purchased in the open market under the ESPP.
NOTE 4. EARNINGS PER SHARE
The details of the computation of basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
July 31, 2016
|
|
Thirteen Weeks Ended
August 2, 2015
|
|
Twenty-Six Weeks Ended
July 31, 2016
|
|
Twenty-Six Weeks Ended
August 2, 2015
|
|
|
(In thousands, except per share amounts)
|
Net income
|
|
$
|
53,625
|
|
|
$
|
47,668
|
|
|
$
|
98,961
|
|
|
$
|
95,478
|
|
Basic weighted-average number of shares outstanding
|
|
136,987
|
|
|
141,372
|
|
|
137,071
|
|
|
141,656
|
|
Assumed conversion of dilutive stock options and awards
|
|
242
|
|
|
272
|
|
|
238
|
|
|
321
|
|
Diluted weighted-average number of shares outstanding
|
|
137,229
|
|
|
141,644
|
|
|
137,309
|
|
|
141,977
|
|
Basic earnings per share
|
|
$
|
0.39
|
|
|
$
|
0.34
|
|
|
$
|
0.72
|
|
|
$
|
0.67
|
|
Diluted earnings per share
|
|
$
|
0.39
|
|
|
$
|
0.34
|
|
|
$
|
0.72
|
|
|
$
|
0.67
|
|
The Company's calculation of weighted-average shares includes the common stock of the Company as well as the exchangeable shares. Exchangeable shares are the equivalent of common shares in all material respects. All classes of stock have, in effect, the same rights and share equally in undistributed net income. For each of the
twenty-six weeks ended July 31, 2016
and
August 2, 2015
,
0.1 million
stock options and awards were anti-dilutive to earnings per share and therefore have been excluded from the computation of diluted earnings per share.
On June 11, 2014, the Company's board of directors approved a program to repurchase shares of the Company's common stock up to an aggregate value of
$450.0 million
. The common stock was repurchased in the open market at prevailing market prices, with the timing and actual number of shares repurchased depending upon market conditions and other factors. During the
twenty-six weeks ended July 31, 2016
and
August 2, 2015
,
0.4 million
and
1.3 million
shares, respectively, were repurchased under the program at a total cost of
$28.6 million
and
$82.0 million
, respectively. The Company's stock repurchase program was completed during the second quarter of fiscal 2016.
NOTE 5. SUPPLEMENTARY FINANCIAL INFORMATION
For the
thirteen weeks ended July 31, 2016
and
August 2, 2015
, there were net foreign exchange gains of
$5.1 million
and
$5.6 million
, respectively, included within selling, general and administrative expenses.
For the
twenty-six weeks ended July 31, 2016
and
August 2, 2015
, there were net foreign exchange losses of
$8.5 million
and net foreign exchange gains of
$1.2 million
, respectively, included within selling, general and administrative expenses.
A summary of certain consolidated balance sheet accounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
2016
|
|
January 31,
2016
|
|
|
(In thousands)
|
Inventories:
|
|
|
|
|
Finished goods
|
|
$
|
285,909
|
|
|
$
|
290,791
|
|
Provision to reduce inventory to market value
|
|
(8,630
|
)
|
|
(6,782
|
)
|
|
|
$
|
277,279
|
|
|
$
|
284,009
|
|
Property and equipment, net:
|
|
|
|
|
Land
|
|
$
|
78,922
|
|
|
$
|
55,488
|
|
Buildings
|
|
32,642
|
|
|
30,885
|
|
Leasehold improvements
|
|
248,223
|
|
|
225,604
|
|
Furniture and fixtures
|
|
79,856
|
|
|
73,254
|
|
Computer hardware
|
|
50,128
|
|
|
44,085
|
|
Computer software
|
|
136,941
|
|
|
112,161
|
|
Equipment and vehicles
|
|
12,675
|
|
|
11,929
|
|
Accumulated depreciation
|
|
(244,377
|
)
|
|
(203,801
|
)
|
|
|
$
|
395,010
|
|
|
$
|
349,605
|
|
Goodwill and intangible assets, net:
|
|
|
|
|
Goodwill
|
|
$
|
25,496
|
|
|
$
|
25,496
|
|
Changes in foreign currency exchange rates
|
|
(1,233
|
)
|
|
(1,666
|
)
|
|
|
24,263
|
|
|
23,830
|
|
Intangibles—reacquired franchise rights
|
|
10,150
|
|
|
10,150
|
|
Accumulated amortization
|
|
(9,466
|
)
|
|
(9,074
|
)
|
Changes in foreign currency exchange rates
|
|
(50
|
)
|
|
(129
|
)
|
|
|
634
|
|
|
947
|
|
|
|
$
|
24,897
|
|
|
$
|
24,777
|
|
Other accrued liabilities:
|
|
|
|
|
Accrued duty, freight, and other operating expenses
|
|
$
|
27,794
|
|
|
$
|
26,017
|
|
Sales tax collected
|
|
9,632
|
|
|
10,506
|
|
Accrued rent
|
|
6,067
|
|
|
6,070
|
|
Other
|
|
7,095
|
|
|
8,083
|
|
|
|
$
|
50,588
|
|
|
$
|
50,676
|
|
Other non-current liabilities:
|
|
|
|
|
Deferred lease liability
|
|
$
|
26,945
|
|
|
$
|
25,723
|
|
Tenant inducements
|
|
23,718
|
|
|
24,609
|
|
|
|
$
|
50,663
|
|
|
$
|
50,332
|
|
NOTE 6. LEGAL PROCEEDINGS
In addition to the legal matters described below, the Company is, from time to time, involved in routine legal matters incidental to the conduct of its business, including legal matters such as initiation and defense of proceedings to protect intellectual property rights, personal injury claims, product liability claims, and similar matters. The Company believes the ultimate resolution of any such current proceeding will not have a material adverse effect on its consolidated balance sheets, results of operations or cash flows.
On July 15, 2015, plaintiffs Hallandale Beach Police Officers and Firefighters' Personnel Retirement Fund and Laborers' District Council Industry Pension Fund filed in the Delaware Court of Chancery a derivative lawsuit on behalf of lululemon against certain current and former directors of lululemon, captioned
Laborers' District Council Industry Pension Fund v. Bensoussan, et al.,
C.A. No. 11293-CB. Plaintiffs claim that the individual defendants breached their fiduciary duties to lululemon by allegedly failing to investigate certain trades of lululemon stock owned by Dennis J. Wilson in 2013. Plaintiffs
also claim that Mr. Wilson breached his fiduciary duties by making his broker aware of certain non-public, material events prior to executing sales of lululemon stock on Mr. Wilson's behalf. On June 14, 2016 the Court dismissed the action for failure to adequately plead that demand on the board was excused and for failure to state a claim upon which relief may be granted. The plaintiffs have appealed the dismissal to the Supreme Court of the state of Delaware.
On October 9, 2015, certain current and former hourly employees of the Company filed a class action lawsuit in the Supreme Court of New York entitled
Rebecca Gathmann-Landini et al v. lululemon USA inc.
On December 2, 2015, the case was moved to the United States District Court for the Eastern District of New York. The lawsuit alleges that the Company violated various New York labor codes by failing to pay all earned wages, including overtime compensation. The plaintiffs are seeking an unspecified amount of damages. The Company intends to vigorously defend this matter.
NOTE 7. INCOME TAXES
The Company is in the process of finalizing a bilateral Advance Pricing Arrangement ("APA") with the Internal Revenue Service ("IRS") and the Canada Revenue Agency ("CRA"), as detailed in Note 15 included in Item 8 of the Company's fiscal
2015
Annual Report on Form 10-K filed with the SEC on
March 30, 2016
.
The outcome of the APA will result in an income tax recovery in the United States and an income tax payment in Canada for fiscal 2011 through fiscal 2015.
During the first quarter of fiscal
2016
, the Company received new communications from the IRS with respect to the APA. Based on this new information, the Company has determined that it is now more likely than not that the APA will result in an increased amount of income tax recoverable in the United States for fiscal 2011 through fiscal 2015. The Company also updated its income tax calculations with respect to the APA and the associated plan to repatriate
$156.0 million
of foreign earnings, for the exchange rates in effect as of
July 31, 2016
. These income tax adjustments resulted in a net income tax recovery of
$1.9 million
in the
second
quarter of fiscal
2016
, and
$7.6 million
in the first
two quarters
of fiscal
2016
.
The Company recorded a related net interest expense of
$0.3 million
in the
second
quarter of fiscal
2016
in other income (expense), net, and
$1.5 million
in the first
two quarters
of fiscal
2016
. This primarily represents additional accrued interest on the Canadian income tax payable related to the APA.
The Company anticipates that the APA will be finalized within the next six months. The Company's expected filing position represents the largest benefit considered by management to be more likely than not. However, the Company's tax position will be updated as new information becomes available.
NOTE 8. SEGMENT REPORTING
The Company applies ASC Topic 280,
Segment Reporting
("ASC 280"), in determining reportable segments for its financial statement disclosure. The Company reports segments based on the financial information it uses in managing its business. The Company's reportable segments are comprised of company-operated stores and direct to consumer. Direct to consumer represents sales from the Company's e-commerce websites. Outlets, showrooms, sales to wholesale accounts, warehouse sales, temporary locations, and a license and supply arrangement have been combined into other. Information for these segments is detailed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
July 31, 2016
|
|
Thirteen Weeks Ended
August 2, 2015
|
|
Twenty-Six Weeks Ended
July 31, 2016
|
|
Twenty-Six Weeks Ended
August 2, 2015
|
|
|
(In thousands)
|
Net revenue:
|
|
|
|
|
|
|
|
|
Company-operated stores
|
|
$
|
381,389
|
|
|
$
|
339,779
|
|
|
$
|
740,093
|
|
|
$
|
653,873
|
|
Direct to consumer
|
|
87,399
|
|
|
82,239
|
|
|
184,965
|
|
|
165,875
|
|
Other
|
|
45,732
|
|
|
30,992
|
|
|
84,978
|
|
|
56,806
|
|
|
|
$
|
514,520
|
|
|
$
|
453,010
|
|
|
$
|
1,010,036
|
|
|
$
|
876,554
|
|
Income from operations before general corporate expense:
|
|
|
|
|
|
|
|
|
Company-operated stores
|
|
$
|
80,277
|
|
|
$
|
67,441
|
|
|
$
|
153,564
|
|
|
$
|
136,664
|
|
Direct to consumer
|
|
32,644
|
|
|
32,250
|
|
|
71,152
|
|
|
67,121
|
|
Other
|
|
4,636
|
|
|
1,820
|
|
|
6,720
|
|
|
2,801
|
|
|
|
117,557
|
|
|
101,511
|
|
|
231,436
|
|
|
206,586
|
|
General corporate expense
|
|
43,598
|
|
|
34,932
|
|
|
99,888
|
|
|
71,971
|
|
Income from operations
|
|
73,959
|
|
|
66,579
|
|
|
131,548
|
|
|
134,615
|
|
Other income (expense), net
|
|
578
|
|
|
842
|
|
|
92
|
|
|
1,371
|
|
Income before income tax expense
|
|
$
|
74,537
|
|
|
$
|
67,421
|
|
|
$
|
131,640
|
|
|
$
|
135,986
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Company-operated stores
|
|
$
|
11,515
|
|
|
$
|
24,788
|
|
|
$
|
28,265
|
|
|
$
|
41,632
|
|
Direct to consumer
|
|
4,551
|
|
|
1,479
|
|
|
5,715
|
|
|
1,932
|
|
Corporate and other
|
|
28,552
|
|
|
10,915
|
|
|
37,281
|
|
|
21,554
|
|
|
|
$
|
44,618
|
|
|
$
|
37,182
|
|
|
$
|
71,261
|
|
|
$
|
65,118
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
Company-operated stores
|
|
$
|
14,511
|
|
|
$
|
11,736
|
|
|
$
|
28,295
|
|
|
$
|
23,013
|
|
Direct to consumer
|
|
1,725
|
|
|
1,599
|
|
|
3,054
|
|
|
3,135
|
|
Corporate and other
|
|
4,261
|
|
|
3,360
|
|
|
8,334
|
|
|
6,643
|
|
|
|
$
|
20,497
|
|
|
$
|
16,695
|
|
|
$
|
39,683
|
|
|
$
|
32,791
|
|
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Some of the statements contained in this Form 10-Q and any documents incorporated herein by reference constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included or incorporated in this Form 10-Q are forward-looking statements, particularly statements which relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the development and introduction of new products, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "intends," "predicts," "potential" or the negative of these terms or other comparable terminology.
The forward-looking statements contained in this Form 10-Q and any documents incorporated herein by reference reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, those factors described in "Risk Factors" and elsewhere in this report.
The forward-looking statements contained in this Form 10-Q reflect our views and assumptions only as of the date of this Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this Form 10-Q. Except as required by applicable securities law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
This information should be read in conjunction with the unaudited interim consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K.
We disclose material non-public information through one or more of the following channels: our investor relations website (http://investor.lululemon.com/), the social media channels identified on our investor relations website, press releases, SEC filings, public conference calls, and webcasts.
Overview
lululemon is a designer, distributor, and retailer of healthy lifestyle inspired athletic apparel. Since our inception, we have developed a distinctive corporate culture, and we have a mission to produce products which create transformational experiences for people to live happy, healthy, fun lives. We promote a set of core values in our business which include taking personal responsibility, nurturing entrepreneurial spirit, acting with honesty and courage, valuing connection, and choosing to have fun. These core values attract passionate and motivated employees who are driven to succeed and share our purpose of "elevating the world from mediocrity to greatness."
Our healthy lifestyle inspired athletic apparel is marketed under the lululemon athletica and ivivva athletica brand names. We offer a comprehensive line of apparel and accessories for women, men and female youth. Our apparel assortment includes items such as pants, shorts, tops and jackets designed for healthy lifestyle and athletic activities such as yoga, running, training, most other sweaty pursuits, and athletic wear for female youth.
Financial Highlights
|
|
•
|
Net revenue for
second
quarter of fiscal
2016
increased by
14%
to
$514.5 million
, from
$453.0 million
in the
second
quarter of fiscal
2015
. Net revenue increased across all segments, and the increase was primarily due to the addition of
43
net new company-operated stores since the
second
quarter of fiscal
2015
, as well as increased comparable store sales.
|
|
|
•
|
Total comparable sales, which includes comparable store sales and direct to consumer,
increased
4%
in the
second
quarter of fiscal
2016
compared to the
second
quarter of fiscal
2015
. On a constant dollar basis, total comparable sales
increased
by
5%
.
|
|
|
•
|
Company-operated stores accounted for
74.1%
of net revenue in the
second
quarter of fiscal
2016
compared to
75.0%
of net revenue in the
second
quarter of fiscal
2015
. Comparable store sales
increased
by
3%
in the
second
quarter of fiscal
|
2016
compared to the
second
quarter of fiscal
2015
, or by
4%
on a constant dollar basis, primarily as a result of improved conversion rates and increased dollar value per transaction.
|
|
•
|
Our direct to consumer segment represented
17.0%
of our net revenue in the
second
quarter of fiscal
2016
compared to
18.2%
in the
second
quarter of fiscal
2015
. Direct to consumer net revenue
increased
by
6%
in the
second
quarter of fiscal
2016
compared to the
second
quarter of fiscal
2015
, or by
7%
on a constant dollar basis, primarily as the result of higher traffic on our e-commerce websites and increased dollar value per transaction. During the
second
quarter of fiscal
2015
, we held online warehouse sales in Canada and the United States which generated net revenue of $6.6 million. We did not hold any online warehouse sales during the
second
quarter of fiscal
2016
.
|
|
|
•
|
Gross profit for the
second
quarter of fiscal
2016
increase
d by
20%
to
$254.2 million
, from
$212.0 million
in the
second
quarter of fiscal
2015
. Gross profit as a percentage of net revenue, or gross margin,
increase
d to
49.4%
compared to
46.8%
in the
second
quarter of fiscal
2015
. The
increase
in gross margin was primarily due to lower product costs, partially offset by increased fixed costs and expenses related to our product and supply chain departments.
|
|
|
•
|
Income from operations for the
second
quarter of fiscal
2016
increase
d by
11%
to
$74.0 million
, from
$66.6 million
in the
second
quarter of fiscal
2015
. As a percentage of net revenue, income from operations
decreased
to
14.4%
compared to
14.7%
of net revenue in the
second
quarter of fiscal
2015
.
|
|
|
•
|
Income tax expense for the
second
quarter of fiscal
2016
increase
d by
6%
to
$20.9 million
, from
$19.8 million
in the
second
quarter of fiscal
2015
. Our effective tax rate for the
second
quarter of fiscal
2016
was
28.1%
compared to
29.3%
for the
second
quarter of fiscal
2015
. The
second
quarter of fiscal
2016
included a net income tax recovery of
$1.9 million
related to our transfer pricing arrangements and the associated plan to repatriate foreign earnings. In addition, the
second
quarter of fiscal
2016
included a related net interest expense of
$0.3 million
recorded in other income (expense), net. Our effective tax rate excluding these adjustments was
30.5%
in the
second
quarter of fiscal
2016
.
|
|
|
•
|
Diluted earnings per share for the
second
quarter of fiscal
2016
were
$0.39
compared to
$0.34
in the
second
quarter of fiscal
2015
. Excluding the above tax and related interest adjustments, diluted earnings per share were
$0.38
for the
second
quarter of fiscal
2016
.
|
Refer to the non-GAAP reconciliation tables contained in the "Results of Operations" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations for reconciliations between constant dollar changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue, and the effective tax rate and diluted earnings per share excluding certain tax and related interest adjustments, and the most directly comparable measures calculated in accordance with GAAP.
Results of Operations
Thirteen Week Results
The following table summarizes key components of our results of operations for the
thirteen weeks ended July 31, 2016
and
August 2, 2015
. The percentages are presented as a percentage of net revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended July 31, 2016 and August 2, 2015
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
(Percentages)
|
Net revenue
|
|
$
|
514,520
|
|
|
$
|
453,010
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of goods sold
|
|
260,359
|
|
|
240,985
|
|
|
50.6
|
|
|
53.2
|
|
Gross profit
|
|
254,161
|
|
|
212,025
|
|
|
49.4
|
|
|
46.8
|
|
Selling, general and administrative expenses
|
|
180,202
|
|
|
145,446
|
|
|
35.0
|
|
|
32.1
|
|
Income from operations
|
|
73,959
|
|
|
66,579
|
|
|
14.4
|
|
|
14.7
|
|
Other income (expense), net
|
|
578
|
|
|
842
|
|
|
0.1
|
|
|
0.2
|
|
Income before income tax expense
|
|
74,537
|
|
|
67,421
|
|
|
14.5
|
|
|
14.9
|
|
Income tax expense
|
|
20,912
|
|
|
19,753
|
|
|
4.1
|
|
|
4.4
|
|
Net income
|
|
$
|
53,625
|
|
|
$
|
47,668
|
|
|
10.4
|
%
|
|
10.5
|
%
|
Net Revenue
Net revenue
increase
d
$61.5
million, or
14%
, to
$514.5
million for the
second
quarter of fiscal
2016
from
$453.0
million for the
second
quarter of fiscal
2015
. On a constant dollar basis, assuming the average exchange rates for the
second
quarter of fiscal
2016
remained constant with the average exchange rates for the
second
quarter of fiscal
2015
, net revenue
increased
$66.8 million
, or
15%
.
Net revenue
increase
d across all segments, and the increase was primarily from our company-operated stores, including net revenue from new stores and increased comparable store sales. Total comparable sales, which includes comparable store sales and direct to consumer,
increased
4%
in the
second
quarter of fiscal
2016
compared to the
second
quarter of fiscal
2015
. Total comparable sales
increased
5%
on a constant dollar basis.
Our net revenue on a segment basis for the
thirteen weeks ended July 31, 2016
and
August 2, 2015
is summarized below. The percentages are presented as a percentage of total net revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended July 31, 2016 and August 2, 2015
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
(Percentages)
|
Company-operated stores
|
|
$
|
381,389
|
|
|
$
|
339,779
|
|
|
74.1
|
%
|
|
75.0
|
%
|
Direct to consumer
|
|
87,399
|
|
|
82,239
|
|
|
17.0
|
|
|
18.2
|
|
Other
|
|
45,732
|
|
|
30,992
|
|
|
8.9
|
|
|
6.8
|
|
Net revenue
|
|
$
|
514,520
|
|
|
$
|
453,010
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Company-operated Stores.
Net revenue from our company-operated stores segment
increase
d
$41.6 million
, or
12%
, to
$381.4 million
in the
second
quarter of fiscal
2016
from
$339.8 million
in the
second
quarter of fiscal
2015
. The following contributed to the increase in net revenue from our company-operated stores segment:
|
|
•
|
Net revenue from company-operated stores we opened or significantly expanded subsequent to
August 2, 2015
, and therefore not included in comparable store sales, contributed
$31.2 million
to the
increase
. We have opened
43
net new company-operated stores since the
second
quarter of fiscal
2015
, including
32
stores in the United States,
two
stores in each of Canada and the United Kingdom, and
one
store in each of Australia, Germany, Hong Kong, Puerto Rico, Singapore, South Korea, and Switzerland.
|
|
|
•
|
A comparable store sales increase of
3%
in the
second
quarter of fiscal
2016
compared to the
second
quarter of fiscal
2015
resulted in a
$10.4 million
increase
to net revenue. Comparable store sales
increased
4%
, or
$13.6 million
on a constant dollar basis. The increase in comparable store sales was primarily as a result of improved conversion rates and increased dollar value per transaction.
|
Direct to Consumer.
Net revenue from our direct to consumer segment
increase
d
$5.2 million
, or
6%
, to
$87.4 million
in the
second
quarter of fiscal
2016
from
$82.2 million
in the
second
quarter of fiscal
2015
. Direct to consumer revenue
increased
7%
on a constant dollar basis. This
increase
was primarily the result of higher traffic on our e-commerce websites and increased dollar value per transaction. During the
second
quarter of fiscal
2015
, we held online warehouse sales in Canada and the United States which generated net revenue of $6.6 million. We did not hold any online warehouse sales during the
second
quarter of fiscal
2016
.
Other.
Net revenue from our other segment
increase
d
$14.7 million
, or
48%
, to
$45.7 million
in the
second
quarter of fiscal
2016
from
$31.0 million
in the
second
quarter of fiscal
2015
. This
increase
was primarily the result of an increased number of outlets and increased revenue at existing outlets during the
second
quarter of fiscal
2016
compared to the
second
quarter of fiscal
2015
, as well as net revenue from warehouse sales held during the second quarter of fiscal
2016
.
Gross Profit
Gross profit
increase
d
$42.1 million
, or
20%
, to
$254.2 million
for the
second
quarter of fiscal
2016
from
$212.0 million
for the
second
quarter of fiscal
2015
.
Gross profit as a percentage of net revenue, or gross margin,
increase
d by
260
basis points, to
49.4%
in the
second
quarter of fiscal
2016
from
46.8%
in the
second
quarter of fiscal
2015
. The
increase
in gross margin was primarily the result of:
|
|
•
|
lower product costs and lower costs related to our raw material commitments of 310 basis points; and
|
|
|
•
|
a decrease in markdowns and discounts of 50 basis points.
|
This was offset by an increase in fixed costs, such as occupancy costs and depreciation, relative to the increase in net revenue, of 40 basis points, an increase in expenses related to our product and supply chain departments, relative to the increase in net revenue, of 40 basis points, and an unfavorable impact of foreign exchange rates of 20 basis points.
Selling, General and Administrative Expenses
Selling, general and administrative expenses
increase
d
$34.8 million
, or
24%
, to
$180.2 million
in the
second
quarter of fiscal
2016
from
$145.4 million
in the
second
quarter of fiscal
2015
. The
increase
in selling, general and administrative expenses was principally comprised of:
|
|
•
|
an increase
in employee costs for our operating locations of
$12.1 million
primarily from a growth in labor hours and bonuses, mainly associated with new company-operated stores and other new operating locations;
|
|
|
•
|
an increase
in head office employee costs of
$10.8 million
primarily due to additional employees to support the growth in our business;
|
|
|
•
|
an increase
in head office costs other than employee costs of
$4.7 million
primarily due to increased professional fees, including supply chain consulting, increased information technology costs, increased depreciation, and increased brand and community costs;
|
|
|
•
|
an increase
in other costs of
$4.5 million
for our operating channels including digital marketing expenses and repairs and maintenance costs;
|
|
|
•
|
an increase
in variable costs of
$2.2 million
for our operating channels such as distribution costs and credit card fees, primarily as a result of increased sales; and
|
|
|
•
|
a decrease in net foreign exchange gains of
$0.5 million
, from
$5.6 million
in the
second
quarter of fiscal
2015
to
$5.1 million
in the
second
quarter of fiscal
2016
, primarily related to the revaluation of U.S. dollar cash and receivables held in Canada.
|
As a percentage of net revenue, selling, general and administrative expenses
increased
290
basis points, to
35.0%
in the
second
quarter of fiscal
2016
from
32.1%
in the
second
quarter of fiscal
2015
.
Income from Operations
Income from operations
increase
d
$7.4 million
, or
11%
, to
$74.0 million
in the
second
quarter of fiscal
2016
from
$66.6 million
in the
second
quarter of fiscal
2015
. The
increase
was primarily the result of
an increase
in gross profit of
$42.1 million
, partially offset by
an increase
in selling, general and administrative costs of
$34.8 million
.
On a segment basis, we determine income from operations without taking into account our general corporate expenses.
Income from operations before general corporate expenses for the
thirteen weeks ended July 31, 2016
and
August 2, 2015
is summarized below. The percentages are presented as a percentage of net revenue of the respective operating segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended July 31, 2016 and August 2, 2015
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
(Percentages)
|
Company-operated stores
|
|
$
|
80,277
|
|
|
$
|
67,441
|
|
|
21.0
|
%
|
|
19.8
|
%
|
Direct to consumer
|
|
32,644
|
|
|
32,250
|
|
|
37.4
|
|
|
39.2
|
|
Other
|
|
4,636
|
|
|
1,820
|
|
|
10.1
|
|
|
5.9
|
|
Income from operations before general corporate expense
|
|
117,557
|
|
|
101,511
|
|
|
|
|
|
General corporate expense
|
|
43,598
|
|
|
34,932
|
|
|
|
|
|
Income from operations
|
|
$
|
73,959
|
|
|
$
|
66,579
|
|
|
|
|
|
Company-operated Stores.
Income from operations from our company-operated stores segment
increase
d
$12.8 million
, or
19%
, to
$80.3 million
for the
second
quarter of fiscal
2016
from
$67.4 million
for the
second
quarter of fiscal
2015
primarily due to
increase
d gross profit of
$29.1 million
. This was partially offset by an increase in selling, general and administrative expenses, including increased store employee costs and higher operating expenses associated with new stores and increased net revenue at existing stores. Income from operations as a percentage of company-operated stores revenue
increased
by
120
basis points primarily due to increased gross margin, partially offset by deleverage of selling, general and administrative expenses.
Direct to Consumer.
Income from operations from our direct to consumer segment
increased
$0.4 million
, or
1%
, to
$32.6 million
for the
second
quarter of fiscal
2016
from $32.3 million for the
second
quarter of fiscal
2015
. The increase was primarily the result of
increase
d gross profit of
$7.3 million
due to increased net revenue resulting from higher traffic on our e-commerce websites and increased dollar value per transaction. This was partially offset by an increase in selling, general and administrative expenses including higher digital marketing expenses and higher variable costs such as distribution and packaging as a result of higher net revenue. Income from operations as a percentage of direct to consumer revenue
decreased
by
180
basis points primarily due to deleverage of selling, general and administrative expenses, partially offset by increased gross margin.
Other.
Other income from operations
increased
$2.8 million
, or
155%
, to
$4.6 million
for the
second
quarter of fiscal
2016
from
$1.8 million
for the
second
quarter of fiscal
2015
. The increase was primarily the result of
increase
d gross profit of
$5.8 million
, partially offset by increased selling, general and administrative expenses primarily due to increased employee costs. Income from operations as a percentage of other net revenue
increased
by
420
basis points primarily due to decreased selling, general and administrative expenses as a percentage of other net revenue.
General Corporate Expense.
General corporate expense
increased
$8.7 million
, or
25%
, to
$43.6 million
for the
second
quarter of fiscal
2016
from
$34.9 million
for the
second
quarter of fiscal
2015
. This was primarily due to increased employee costs, professional fees, including increased professional fees related to supply chain consulting, and investment in strategic initiatives and projects to support the growth of our business. There was also a decrease in net foreign exchange gains of
$0.5 million
, primarily related to the revaluation of U.S. dollar cash and receivables held in Canada.
Other Income (Expense), Net
Other income (expense), net,
decrease
d
$0.3 million
, or
31%
, to
$0.6 million
for the
second
quarter of fiscal
2016
from
$0.8 million
for the
second
quarter of fiscal
2015
. The
decrease
was primarily due to a net interest expense of
$0.3 million
related to certain tax adjustments that are outlined in Note 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report.
Income Tax Expense
Income tax expense
increase
d
$1.2 million
, or
6%
, to
$20.9 million
in the
second
quarter of fiscal
2016
from
$19.8 million
in the
second
quarter of fiscal
2015
. The
second
quarter of fiscal
2016
included certain tax adjustments totaling a recovery of
$1.9 million
as outlined in Note 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report.
The effective tax rate in the
second
quarter of fiscal
2016
was
28.1%
compared to
29.3%
in the
second
quarter of fiscal
2015
. The effective tax rate excluding the above tax and related interest adjustments was
30.5%
in the
second
quarter of fiscal
2016
.
Net Income
Net income
increase
d
$6.0 million
, or
12%
, to
$53.6 million
for the
second
quarter of fiscal
2016
from
$47.7 million
for the
second
quarter of fiscal
2015
. The
increase
in net income was primarily the result of
an increase
in gross profit of
$42.1 million
, partially offset by
an increase
in selling, general and administrative expenses of
$34.8 million
,
an increase
in income tax expense of
$1.2 million
, and
a decrease
in other income (expense), net of
$0.3 million
.
Twenty-Six Week
Results
The following table summarizes key components of our results of operations for the
twenty-six week periods ended July 31, 2016
and
August 2, 2015
. The percentages are presented as a percentage of net revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended July 31, 2016 and August 2, 2015
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
(Percentages)
|
Net revenue
|
|
$
|
1,010,036
|
|
|
$
|
876,554
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of goods sold
|
|
516,744
|
|
|
458,652
|
|
|
51.2
|
|
|
52.3
|
|
Gross profit
|
|
493,292
|
|
|
417,902
|
|
|
48.8
|
|
|
47.7
|
|
Selling, general and administrative expenses
|
|
361,744
|
|
|
283,287
|
|
|
35.8
|
|
|
32.3
|
|
Income from operations
|
|
131,548
|
|
|
134,615
|
|
|
13.0
|
|
|
15.4
|
|
Other income (expense), net
|
|
92
|
|
|
1,371
|
|
|
—
|
|
|
0.2
|
|
Income before income tax expense
|
|
131,640
|
|
|
135,986
|
|
|
13.0
|
|
|
15.6
|
|
Income tax expense
|
|
32,679
|
|
|
40,508
|
|
|
3.2
|
|
|
4.7
|
|
Net income
|
|
$
|
98,961
|
|
|
$
|
95,478
|
|
|
9.8
|
%
|
|
10.9
|
%
|
Net Revenue
Net revenue
increase
d
$133.5 million
, or
15%
, to
$1,010.0 million
for the first
two quarters
of fiscal
2016
from
$876.6 million
for the first
two quarters
of fiscal
2015
. On a constant dollar basis, assuming the average exchange rates for the first
two quarters
of fiscal
2016
remained constant with average exchange rates for the first
two quarters
of fiscal
2015
, net revenue
increased
$146.0 million
, or
17%
.
Net revenue
increase
d across all segments, and the increase was primarily from our company-operated stores, including net revenue from new stores and increased comparable store sales. Total comparable sales, which includes comparable store sales and direct to consumer,
increased
5%
in the first
two quarters
of fiscal
2016
compared to the first
two quarters
of fiscal
2015
. Total comparable sales
increased
6%
on a constant dollar basis.
Our net revenue on a segment basis for the
twenty-six week periods ended July 31, 2016
and
August 2, 2015
is summarized below. The percentages are presented as a percentage of total net revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended July 31, 2016 and August 2, 2015
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
(Percentages)
|
Company-operated stores
|
|
$
|
740,093
|
|
|
$
|
653,873
|
|
|
73.3
|
%
|
|
74.6
|
%
|
Direct to consumer
|
|
184,965
|
|
|
165,875
|
|
|
18.3
|
|
|
18.9
|
|
Other
|
|
84,978
|
|
|
56,806
|
|
|
8.4
|
|
|
6.5
|
|
Net revenue
|
|
$
|
1,010,036
|
|
|
$
|
876,554
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Company-operated Stores
. Net revenue from our company-operated stores segment
increased
$86.2 million
, or
13%
, to
$740.1 million
in the first
two quarters
of fiscal
2016
from
$653.9 million
in the first
two quarters
of fiscal
2015
. The following contributed to the increase in net revenue from our company-operated stores segment:
|
|
•
|
Net revenue from company-operated stores we opened or significantly expanded subsequent to
August 2, 2015
, and therefore not included in comparable store sales, contributed
$67.3 million
to the increase. We have opened
43
net new company-operated stores since the
second
quarter of fiscal
2015
, including
32
stores in the United States,
two
stores in each of Canada and the United Kingdom, and
one
store in each of Australia, Germany, Hong Kong, Puerto Rico, Singapore, South Korea, and Switzerland.
|
|
|
•
|
A comparable store sales
increase
of
3%
in the first
two quarters
of fiscal
2016
compared to the first
two quarters
of fiscal
2015
resulted in an
$18.9 million
increase
to net revenue. Comparable store sales
increased
4%
, or
$26.6 million
on a constant dollar basis. The increase in comparable store sales was primarily as a result of improved conversion rates and increased dollar value per transaction.
|
Direct to Consumer.
Net revenue from our direct to consumer segment
increase
d
$19.1 million
, or
12%
, to
$185.0 million
in the first
two quarters
of fiscal
2016
from
$165.9 million
in the first
two quarters
of fiscal
2015
. Direct to consumer revenue
increased
13%
on a constant dollar basis. The
increase
in net revenue was primarily the result of higher traffic on our e-commerce websites and an increase in dollar value per transaction.
Other.
Other net revenue
increase
d
$28.2 million
, or
50%
, to
$85.0 million
in the first
two quarters
of fiscal
2016
from
$56.8 million
in the first
two quarters
of fiscal
2015
. This
increase
was primarily the result of an increased number of outlets and increased revenue at existing outlets during the first
two quarters
of fiscal
2016
compared to the first
two quarters
of fiscal
2015
, as well as net revenue from warehouse sales which were held during the second quarter of fiscal
2016
.
Gross Profit
Gross profit
increased
$75.4 million
, or
18%
, to
$493.3 million
for the first
two quarters
of fiscal
2016
from
$417.9 million
for the first
two quarters
of fiscal
2015
.
Gross profit as a percentage of net revenue, or gross margin,
increase
d by
110
basis points, to
48.8%
in the first
two quarters
of fiscal
2016
from
47.7%
in the first
two quarters
of fiscal
2015
. The
increase
in gross margin was primarily the result of an increase in product margin of 210 basis points, primarily due to lower product costs and lower costs related to our raw material commitments.
The
increase
in gross margin was partially offset by an unfavorable impact of foreign exchange rates of 50 basis points, an increase in fixed costs, such as occupancy costs and depreciation, relative to the increase in net revenue, of 30 basis points, and an increase in expenses related to our product and supply chain departments, relative to the increase in net revenue, of 20 basis points.
Selling, General and Administrative Expenses
Selling, general and administrative expenses
increased
$78.5 million
, or
28%
, to
$361.7 million
in the first
two quarters
of fiscal
2016
from
$283.3 million
in the first
two quarters
of fiscal
2015
. The
increase
in selling, general and administrative expenses was principally comprised of:
|
|
•
|
an increase
in employee costs of
$24.8 million
primarily from a growth in bonuses and labor hours associated with new company-operated stores and other new operating locations;
|
|
|
•
|
an increase
in head office employee costs of
$17.5 million
primarily due to additional employees to support the growth in our business;
|
|
|
•
|
an increase
in head office costs other than employee costs of
$11.7 million
primarily due to increased professional fees, including supply chain consulting, increased information technology costs, increased depreciation, and increased brand and community costs;
|
|
|
•
|
an increase in net foreign exchange losses of
$9.6 million
, from a net foreign exchange gain of
$1.2 million
in the first
two quarters
of fiscal
2015
to a net foreign exchange loss of
$8.5 million
in the first
two quarters
of fiscal
2016
, primarily related to the revaluation of U.S. dollar cash and receivables held in Canada;
|
|
|
•
|
an increase
in other costs of
$8.4 million
for our operating channels such as digital marketing expenses, repairs and maintenance, utilities, and communication costs; and
|
|
|
•
|
an increase
in variable costs of
$6.5 million
for our operating channels such as distribution costs, packaging, and credit card fees, primarily as a result of increased sales.
|
As a percentage of net revenue, selling, general and administrative expenses
increased
350
basis points, to
35.8%
in the first
two quarters
of fiscal
2016
from
32.3%
in the first
two quarters
of fiscal
2015
.
Income from Operations
Income from operations
decrease
d
$3.1 million
, or
2%
, to
$131.5 million
in the first
two quarters
of fiscal
2016
from
$134.6 million
in the first
two quarters
of fiscal
2015
. The
decrease
was primarily the result of an
increase
in selling, general and administrative costs of
$78.5 million
, partially offset by
increased
gross profit of
$75.4 million
.
On a segment basis, we determine income from operations without taking into account our general corporate expenses.
Income from operations before general corporate expenses for the
twenty-six week periods ended
July 31, 2016
and
August 2, 2015
is summarized below. The percentages are presented as a percentage of net revenue of the respective operating segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended July 31, 2016 and August 2, 2015
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
(Percentages)
|
Company-operated stores
|
|
$
|
153,564
|
|
|
$
|
136,664
|
|
|
20.7
|
%
|
|
20.9
|
%
|
Direct to consumer
|
|
71,152
|
|
|
67,121
|
|
|
38.5
|
|
|
40.5
|
|
Other
|
|
6,720
|
|
|
2,801
|
|
|
7.9
|
|
|
4.9
|
|
Income from operations before general corporate expense
|
|
231,436
|
|
|
206,586
|
|
|
|
|
|
|
|
General corporate expense
|
|
99,888
|
|
|
71,971
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
131,548
|
|
|
$
|
134,615
|
|
|
|
|
|
|
|
Company-operated Stores.
Income from operations from our company-operated stores segment
increased
$16.9 million
, or
12%
, to
$153.6 million
for the first
two quarters
of fiscal
2016
from
$136.7 million
for the first
two quarters
of fiscal
2015
primarily due to
increase
d gross profit of
$48.5 million
. This was partially offset by an increase in selling, general and administrative expenses, including increased employee costs and increased operating expenses associated with new stores and increased net revenue at existing stores. Income from operations as a percentage of company-operated stores revenue
decreased
by
20
basis points, primarily due to deleverage of selling, general and administrative expenses, partially offset by an increase in gross margin.
Direct to Consumer.
Income from operations from our direct to consumer segment
increase
d
$4.0 million
, or
6%
, to
$71.2 million
for the first
two quarters
of fiscal
2016
from
$67.1 million
for the first
two quarters
of fiscal
2015
. The
increase
was primarily the result of
increase
d gross profit of
$15.6 million
primarily due to increased net revenue resulting from higher traffic on our e-commerce websites and an increase in dollar value per transaction. This was partially offset by an increase in selling, general and administrative expenses including higher digital marketing expenses and higher variable costs such as distribution costs, credit card fees, and packaging as a result of higher net revenue. Income from operations as a percentage of direct to consumer revenue
decreased
by
200
basis points, primarily due to deleverage of selling, general and administrative expenses, partially offset by an increase in gross margin.
Other.
Other income from operations
increase
d
$3.9 million
, or
140%
, to
$6.7 million
for the first
two quarters
of fiscal
2016
from
$2.8 million
for the first
two quarters
of fiscal
2015
. The
increase
was primarily the result of
increase
d gross profit of
$11.3 million
, partially offset by increased selling, general and administrative expenses primarily due to increased employee costs. Income from operations as a percentage of other net revenue
increased
by
300
basis points, primarily due to decreased selling, general and administrative expenses as a percentage of other net revenue.
General Corporate Expense.
General corporate expense
increased
$27.9 million
, or
39%
, to
$99.9 million
for the first
two quarters
of fiscal
2016
from
$72.0 million
for the first
two quarters
of fiscal
2015
. This was primarily due to increased employee costs, professional fees, including increased professional fees related to supply chain consulting, investment in strategic initiatives and projects to support the growth of our business, and due to an increase in net foreign exchange losses of
$9.6 million
, primarily related to the revaluation of U.S. dollar cash and receivables held in Canada.
Other Income (Expense), Net
Other income (expense), net
decrease
d
$1.3 million
, or
93%
, to
$0.1 million
in the first
two quarters
of fiscal
2016
from
$1.4 million
in the first
two quarters
of fiscal
2015
. The decrease was primarily due to net interest expenses of
$1.5 million
related to certain tax adjustments that are outlined in Note 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report.
Income Tax Expense
Income tax expense
decreased
$7.8 million
, or
19%
, to
$32.7 million
in the first
two quarters
of fiscal
2016
from
$40.5 million
in the first
two quarters
of fiscal
2015
. The first
two quarters
of fiscal
2016
included certain tax adjustments totaling a
recovery of
$7.6 million
as outlined in Note 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report.
The effective tax rate in the first
two quarters
of fiscal
2016
was
24.8%
compared to
29.8%
in the first
two quarters
of fiscal
2015
. The effective tax rate excluding the above tax and related interest adjustments was
30.2%
in the first
two quarters
of fiscal
2016
.
Net Income
Net income
increased
$3.5 million
, or
4%
, to
$99.0 million
for the first
two quarters
of fiscal
2016
from
$95.5 million
for the first
two quarters
of fiscal
2015
. The
increase
in net income was primarily a result of
an increase
in gross profit of
$75.4 million
and
a decrease
in income tax expense of
$7.8 million
, partially offset by an
increase
in selling, general and administrative expenses of
$78.5 million
and a
decrease
in other income (expense), net of
$1.3 million
.
Comparable Store Sales and Total Comparable Sales
We separately track comparable store sales, which reflect 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. Net revenue from a store is included in comparable store sales beginning with the first month for which the store has a full month of comparable sales in the prior year. Comparable store sales exclude sales from new stores that have not been open for 12 months, from stores which have not been in their significantly expanded space for 12 months, and from stores which have been temporarily relocated for renovations. Comparable stores sales also exclude sales from direct to consumer, outlets, showrooms, wholesale accounts, warehouse sales, temporary locations, a license and supply arrangement, and sales from company-operated stores which we have closed.
Total comparable sales combines comparable store sales and direct to consumer sales. By measuring the change in year-over-year net revenue in stores that have been open, or in their significantly expanded space, for 12 months or more as well as the change in direct to consumer sales, total comparable sales allows us to evaluate our sales performance eliminating the impact of newly opened or expanded stores.
Non-GAAP Financial Measures
Constant dollar changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue, and the effective tax rate and diluted earnings per share excluding certain tax and related interest adjustments, are non-GAAP financial measures.
A constant dollar basis assumes the average foreign exchange rates for the current 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, which are not under management's control. 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.
We disclose the effective tax rate and diluted earnings per share excluding certain tax and related interest adjustments because of their comparability to our historical information, which we believe is useful to investors.
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. A reconciliation of the non-GAAP financial measures follows, 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.
The below changes in net revenue, total comparable sales, comparable store sales, and direct to consumer revenue show the change compared to the corresponding period in the prior year.
Constant dollar changes in net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended July 31, 2016 and August 2, 2015
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
(Percentages)
|
Net revenue increase
|
|
$
|
61,510
|
|
|
$
|
62,302
|
|
|
14
|
%
|
|
16
|
%
|
Adjustments due to foreign exchange rate changes
|
|
5,251
|
|
|
20,293
|
|
|
1
|
|
|
5
|
|
Net revenue increase in constant dollars
|
|
$
|
66,761
|
|
|
$
|
82,595
|
|
|
15
|
%
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended July 31, 2016 and August 2, 2015
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
(Percentages)
|
Net revenue increase
|
|
$
|
133,483
|
|
|
$
|
101,228
|
|
|
15
|
%
|
|
13
|
%
|
Adjustments due to foreign exchange rate changes
|
|
12,542
|
|
|
35,788
|
|
|
2
|
|
|
5
|
|
Net revenue increase in constant dollars
|
|
$
|
146,025
|
|
|
$
|
137,016
|
|
|
17
|
%
|
|
18
|
%
|
Constant dollar changes in total comparable sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended July 31, 2016 and August 2, 2015
|
|
Twenty-Six Weeks Ended July 31, 2016 and August 2, 2015
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(Percentages)
|
Increase in total comparable sales
1
|
|
4
|
%
|
|
6
|
%
|
|
5
|
%
|
|
4
|
%
|
Adjustments due to foreign exchange rate changes
|
|
1
|
|
|
5
|
|
|
1
|
|
|
4
|
|
Increase in total comparable sales in constant dollars
1
|
|
5
|
%
|
|
11
|
%
|
|
6
|
%
|
|
8
|
%
|
__________
1
Total comparable sales includes comparable store sales and direct to consumer sales. 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.
Constant dollar changes in comparable store sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended July 31, 2016 and August 2, 2015
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
(Percentages)
|
Increase in comparable store sales
1
|
|
$
|
10,416
|
|
|
$
|
1,390
|
|
|
3
|
%
|
|
1
|
%
|
Adjustments due to foreign exchange rate changes
|
|
3,171
|
|
|
12,833
|
|
|
1
|
|
|
5
|
|
Increase in comparable store sales in constant dollars
1
|
|
$
|
13,587
|
|
|
$
|
14,223
|
|
|
4
|
%
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended July 31, 2016 and August 2, 2015
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
(Percentages)
|
Increase (decrease) in comparable store sales
1
|
|
$
|
18,933
|
|
|
$
|
(10,748
|
)
|
|
3
|
%
|
|
(2
|
)%
|
Adjustments due to foreign exchange rate changes
|
|
7,681
|
|
|
22,531
|
|
|
1
|
|
|
4
|
|
Increase in comparable store sales in constant dollars
1
|
|
$
|
26,614
|
|
|
$
|
11,783
|
|
|
4
|
%
|
|
2
|
%
|
_________
1
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.
Constant dollar changes in direct to consumer net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended July 31, 2016 and August 2, 2015
|
|
Twenty-Six Weeks Ended July 31, 2016 and August 2, 2015
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(Percentages)
|
Increase in direct to consumer net revenue
|
|
6
|
%
|
|
30
|
%
|
|
12
|
%
|
|
28
|
%
|
Adjustments due to foreign exchange rate changes
|
|
1
|
|
|
5
|
|
|
1
|
|
|
5
|
|
Increase in direct to consumer net revenue in constant dollars
|
|
7
|
%
|
|
35
|
%
|
|
13
|
%
|
|
33
|
%
|
Effective tax rate, excluding tax and related interest adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended July 31, 2016 and August 2, 2015
|
|
Twenty-Six Weeks Ended July 31, 2016 and August 2, 2015
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(Percentages)
|
Effective tax rate
|
|
28.1
|
%
|
|
29.3
|
%
|
|
24.8
|
%
|
|
29.8
|
%
|
Tax and related interest adjustments
1
|
|
2.4
|
|
|
—
|
|
|
5.4
|
|
|
—
|
|
Effective tax rate, excluding tax and related interest adjustments
|
|
30.5
|
%
|
|
29.3
|
%
|
|
30.2
|
%
|
|
29.8
|
%
|
_________
1
Please refer to Note 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report for an explanation as to the nature of these items.
Diluted earnings per share, excluding tax and related interest adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended July 31, 2016 and August 2, 2015
|
|
Twenty-Six Weeks Ended July 31, 2016 and August 2, 2015
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Diluted earnings per share
|
|
$
|
0.39
|
|
|
$
|
0.34
|
|
|
$
|
0.72
|
|
|
$
|
0.67
|
|
Tax and related interest adjustments
1
|
|
(0.01
|
)
|
|
—
|
|
|
(0.04
|
)
|
|
—
|
|
Diluted earnings per share, excluding tax and related interest adjustments
|
|
$
|
0.38
|
|
|
$
|
0.34
|
|
|
$
|
0.68
|
|
|
$
|
0.67
|
|
_________
1
Please refer to Note 7 to the unaudited interim consolidated financial statements included in Item 1 of Part I of this report for an explanation as to the nature of these items.
Seasonality
Our business is affected by the general seasonal trends common to the retail apparel industry. Our annual net revenue is weighted more heavily toward our fourth fiscal quarter, reflecting our historical strength in sales during the holiday season, while our operating expenses are more equally distributed throughout the year. As a result, a substantial portion of our operating profits are generated in the fourth quarter of our fiscal year.
Liquidity and Capital Resources
Our primary sources of liquidity are our current balances of cash and cash equivalents and cash flows from operations. Our primary cash needs are capital expenditures for opening new stores and remodeling or relocating existing stores, making information technology system enhancements, funding working capital requirements, and making other strategic capital investments both in North America and internationally. We may also use cash to repurchase shares of our common stock. Cash and cash equivalents in excess of our needs are held in interest bearing accounts with financial institutions.
At
July 31, 2016
, our working capital (excluding cash and cash equivalents) was
$229.9 million
and our cash and cash equivalents were
$535.3
million.
The following table summarizes our net cash flows provided by and used in operating, investing and financing activities for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended July 31, 2016 and August 2, 2015
|
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
Total cash provided by (used in):
|
|
|
|
|
Operating activities
|
|
$
|
99,988
|
|
|
$
|
32,161
|
|
Investing activities
|
|
(71,261
|
)
|
|
(65,118
|
)
|
Financing activities
|
|
(23,877
|
)
|
|
(78,837
|
)
|
Effect of exchange rate changes on cash
|
|
29,018
|
|
|
(11,423
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
33,868
|
|
|
$
|
(123,217
|
)
|
Operating Activities
Cash flows provided by operating activities consist primarily of net income adjusted for certain items not affecting cash and the effect of changes in operating assets and liabilities.
Cash provided by operating activities
increased
$67.8 million
, to
$100.0 million
for the first
two quarters
of fiscal
2016
compared to
$32.2 million
for the first
two quarters
of fiscal
2015
. The increase was primarily the result of decreased inventory purchases and an increase in net income taxes payable.
Investing Activities
Cash flows used in investing activities relate entirely to capital expenditures. The capital expenditures were primarily for opening new company-operated stores, remodeling or relocating certain stores, and ongoing store refurbishment. We also had capital expenditures related to information technology and business systems, related to corporate land and buildings, and for opening retail locations other than company-operated stores.
Cash used in investing activities
increased
$6.1 million
to
$71.3 million
for the first
two quarters
of fiscal
2016
from
$65.1 million
for the first
two quarters
of fiscal
2015
. The increase was primarily the result of the purchase of a land parcel in Vancouver, BC for $19.7 million for general corporate purposes. The increase was partially offset by reduced capital expenditures related to our company-operated stores primarily as a result of opening fewer company-operated stores in the first
two quarters
of fiscal
2016
compared to the first
two quarters
of fiscal
2015
.
Financing Activities
Cash flows used in or provided by financing activities consist primarily of cash used to repurchase shares of our common stock and certain cash flows related to stock-based compensation.
Cash used in financing activities
decreased
$55.0 million
, to
$23.9 million
for the first
two quarters
of fiscal
2016
compared to
$78.8 million
for the first
two quarters
of fiscal
2015
. Our cash used in financing activities for the first
two quarters
of fiscal
2016
included
$28.6 million
to repurchase
0.4 million
shares under our stock repurchase program compared to
$82.0 million
to repurchase
1.3 million
shares for the first
two quarters
of fiscal
2015
.
We believe that our cash and cash equivalent balances, cash generated from operations, and borrowings available to us under our revolving credit facility will be adequate to meet our liquidity needs and capital expenditure requirements for at least the next 12 months. Our cash from operations may be negatively impacted by a decrease in demand for our products as well as the other factors described in Item 1 of Part II of this Quarterly Report on Form 10-Q. In addition, we may make discretionary capital improvements with respect to our stores, distribution facilities, headquarters, or systems, which we would expect to fund through the use of cash, issuance of debt or equity securities or other external financing sources to the extent we were unable to fund such capital expenditures out of our cash and cash equivalents and cash generated from operations.
Revolving Credit Facility
In November 2013, we entered into unsecured demand revolving credit facilities with HSBC Bank Canada and Bank of America, N.A., Canada Branch, for up to $15.0 million in the aggregate to support the issuance of letters of credit and to fund our working capital requirements. Borrowings under the uncommitted credit facilities are made on a when-and-as-needed basis at our discretion. These facilities were renewed for a one year period in November 2015.
Borrowings under the credit facility can be made either as (i) U.S. Dollar Loans - U.S. Dollar Loans bear interest a rate equal to U.S. LIBOR plus 100 basis points or U.S. Base Rate, at our option; (ii) Letters of Credit - Borrowings drawn down under standby letters of credit issued by the banks bear a fee of 100 basis points; and (iii) CDN Dollar Loans - CDN Dollar Loans bear interest at a rate equal to the CDOR Rate plus 100 basis points or the Canadian Prime Rate, at our option.
At
July 31, 2016
, aside from letters of credit, there were no borrowings outstanding under these credit facilities.
Off-Balance Sheet Arrangements
We enter into standby letters of credit to secure certain of our obligations, including leases, taxes and duties. As of
July 31, 2016
, letters of credit and letters of guarantee totaling
$1.5 million
had been issued.
We have not entered into any transactions, agreements or other contractual arrangements to which an entity unconsolidated with us is a party and under which we have (i) any obligation under a guarantee, (ii) any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity, (iii) any obligation under derivative instruments that are indexed to our shares and classified as equity in our consolidated balance sheets, or (iv) any obligation arising out of a variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. Actual results may vary from our estimates in amounts that may be material to the financial statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements. Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for our
2015
fiscal year end filed with the SEC on
March 30, 2016
and in Note 2 included in Item 1 of Part I of this Quarterly Report on Form 10-Q.
Operating Locations
Our company-operated stores by brand and by country as of
July 31, 2016
and
January 31, 2016
, are summarized in the table below.
|
|
|
|
|
|
|
|
|
|
July 31,
2016
|
|
January 31,
2016
|
lululemon athletica
|
|
|
|
|
United States
|
|
231
|
|
|
229
|
|
Canada
|
|
49
|
|
|
48
|
|
Australia
|
|
27
|
|
|
26
|
|
United Kingdom
|
|
6
|
|
|
6
|
|
New Zealand
|
|
5
|
|
|
5
|
|
Singapore
|
|
3
|
|
|
2
|
|
Hong Kong
|
|
2
|
|
|
2
|
|
Germany
|
|
1
|
|
|
1
|
|
Puerto Rico
|
|
1
|
|
|
1
|
|
South Korea
|
|
1
|
|
|
—
|
|
Switzerland
|
|
1
|
|
|
—
|
|
|
|
327
|
|
|
320
|
|
ivivva athletica
|
|
|
|
|
United States
|
|
39
|
|
|
31
|
|
Canada
|
|
13
|
|
|
12
|
|
|
|
52
|
|
|
43
|
|
Total
|
|
379
|
|
|
363
|
|
As of
July 31, 2016
, there were
three
retail locations in the United Arab Emirates operated by a third party under a license and supply arrangement, which are not included in the above table.