lululemon athletica inc. (NASDAQ:LULU) today announced financial
results for the second quarter ended July 30, 2017.
The Company reported diluted earnings per share of $0.36 for the
second quarter of fiscal 2017. Excluding the impact of the ivivva
restructuring that was announced on June 1, 2017, the Company
reported adjusted diluted earnings per share of $0.39.
The summary below provides both GAAP and adjusted non-GAAP
financial measures. In connection with the restructuring of its
ivivva operations, the Company recognized pre-tax costs totaling
$5.4 million in the second quarter of fiscal 2017. The adjusted
financial measures exclude the impact of the ivivva restructuring
and the related tax effects, and also exclude certain discrete tax
items which were recognized during the second quarter of fiscal
2016.
For the second quarter ended July 30, 2017:
- Net revenue was $581.1 million, an
increase of 13% compared to the second quarter of fiscal 2016. On a
constant dollar basis, net revenue increased 13%.
- Total comparable sales increased 7%, or
increased by 7% on a constant dollar basis.
- Comparable store sales increased 2%, or
increased by 2% on a constant dollar basis.
- Direct to consumer net revenue
increased 29%, or increased 30% on a constant dollar basis. During
the quarter the Company held an online warehouse sale. Excluding
the impact of this sale, direct to consumer net revenue increased
15%, or increased 16% on a constant dollar basis.
- Gross profit was $297.4 million, an
increase of 17% compared to the second quarter of fiscal 2016.
Adjusted gross profit was $299.7 million, an increase of 18%.
- Gross margin was 51.2%, an increase of
180 basis points compared to the second quarter of fiscal 2016.
Adjusted gross margin was 51.6%, an increase of 220 basis
points.
- Income from operations was $68.7
million, a decrease of 7% compared to the second quarter of fiscal
2016. Adjusted income from operations increased by $0.2 million to
$74.1 million.
- Operating margin was 11.8%, a decrease
of 260 basis points compared to the second quarter of fiscal 2016.
Adjusted operating margin was 12.8%, a decrease of 160 basis
points.
- Income tax expense was $20.8 million
compared to $20.9 million in the second quarter of fiscal 2016 and
the effective tax rate was 29.9% compared to 28.1%. The adjusted
effective tax rate was 29.6% compared to 30.5% in the second
quarter of fiscal 2016.
- Diluted earnings per share were $0.36
compared to $0.39 in the second quarter of fiscal 2016. Adjusted
diluted earnings per share were $0.39 compared to $0.38 for the
second quarter of fiscal 2016.
- The Company repurchased 1.5
million shares of its own common stock at an average cost
of $52.93 per share.
The Company ended the second quarter of fiscal 2017 with $721.2
million in cash and cash equivalents compared to $535.3 million at
the end of the second quarter of fiscal 2016. Inventories at the
end of the second quarter of fiscal 2017 increased by 14% to $316.4
million compared to $277.3 million at the end of the second quarter
of fiscal 2016. The Company ended the quarter with 421 stores.
Laurent Potdevin, CEO, lululemon, commented: "Our performance
reflects the growing global consumer response to lululemon's unique
position as the leading brand that defines an active, mindful
lifestyle. Through continuing to deliver category-defining product
innovation, we are creating experiences that our guests, both
existing and new, desire. This strong brand momentum reinforces my
confidence in our long-term strategy."
Mr. Potdevin added: "The acceleration that we have seen across
the business in the second quarter enables us to take another
positive step on our path towards achieving $4 billion in revenue
by 2020. Finally, I would also like to express my gratitude for the
constant energy and determination of our teams and ambassadors, who
powerfully bring our brand to life."
Updated Outlook
In connection with the restructuring of the ivivva operations,
we expect to recognize total pre-tax costs of between $50.0 million
and $60.0 million in fiscal 2017, inclusive of $23.2 million
recognized during the first two quarters of fiscal 2017. This
primarily relates to long-lived asset impairment and lease
termination costs.
For the third quarter of fiscal 2017, we expect net revenue to
be in the range of $605 million to $615 million based on a total
comparable sales increase in the mid-single digits on a constant
dollar basis. Diluted earnings per share are expected to be in the
range of $0.33 to $0.35 for the quarter. Excluding the impact of
the ivivva restructuring, we expect adjusted diluted earnings per
share to be in the range of $0.50 to $0.52 for the quarter. This
guidance assumes 136.3 million diluted weighted-average shares
outstanding and a 32.2% tax rate, or 30.4% excluding the tax effect
of the ivivva restructuring. The guidance does not reflect
potential future repurchases of the Company's shares.
For the full fiscal 2017, we now expect net revenue to be in the
range of $2.545 billion to $2.595 billion based on a total
comparable sales increase in the low-single digits on a constant
dollar basis. Diluted earnings per share are expected to be in the
range of $2.04 to $2.11 for the full year. Excluding the impact of
the ivivva restructuring, we expect adjusted diluted earnings per
share to be in the range of $2.35 to $2.42 for the year. This
guidance assumes 136.3 million diluted weighted-average shares
outstanding and a 30.8% tax rate, or 30.3% excluding the tax effect
of the ivivva restructuring. The guidance does not reflect
potential future repurchases of the Company's shares.
The guidance and outlook forward-looking statements made in this
press release are based on management's expectations as of the date
of this press release and the Company undertakes no duty to update
or to continue to provide information with respect to any
forward-looking statements or risk factors, whether as a result of
new information or future events or circumstances or otherwise.
Actual results and the timing of events could differ materially
from those anticipated in these forward-looking statements as a
result of risks and uncertainties, including those stated
below.
Conference Call Information
A conference call to discuss second quarter results is scheduled
for today, August 31, 2017, at 4:30 p.m. Eastern time. Those
interested in participating in the call are invited to dial
1-800-319-4610 or 1-604-638-5340, if calling internationally,
approximately 10 minutes prior to the start of the call. A live
webcast of the conference call will be available online at:
http://investor.lululemon.com/events.cfm. A replay will be made
available online approximately two hours following the live call
for a period of 30 days.
About lululemon athletica inc.
lululemon athletica inc. (NASDAQ:LULU) is a healthy lifestyle
inspired athletic apparel company for yoga, running, training, and
most other sweaty pursuits, with products that create
transformational experiences for people to live happy, healthy, fun
lives. Setting the bar in technical fabrics and functional
designs, lululemon works with yogis and athletes in local
communities for continuous research and product feedback. For
more information, visit www.lululemon.com.
Non-GAAP Financial Measures
Constant dollar changes in net revenue, total comparable sales,
comparable store sales, direct to consumer net revenue, and direct
to consumer net revenue excluding the online warehouse sale, and
the adjusted financial results, are non-GAAP financial
measures.
A constant dollar basis assumes the average foreign exchange
rates for the period remained constant with the average foreign
exchange rates for the same period of the prior year. We provide
constant dollar changes in net revenue, total comparable sales,
comparable store sales, direct to consumer net revenue, and direct
to consumer net revenue excluding the online warehouse sale because
we use these measures to understand the underlying growth rate of
net revenue excluding the impact of changes in foreign exchange
rates. We believe that disclosing these measures on a constant
dollar basis is useful to investors because it enables them to
better understand the level of growth of our business.
Adjusted gross profit, gross margin, income from operations,
operating margin, effective tax rates, and diluted earnings per
share exclude the costs recognized in connection with the
restructuring of our ivivva operations, its related tax effects,
and certain discrete items related to our transfer pricing
arrangements and taxes on repatriation of foreign earnings. We
believe these adjusted financial measures are useful to investors
as the adjustments do not directly relate to our ongoing business
operations and therefore do not contribute to a meaningful
evaluation of the trend in our operating performance. Furthermore,
we do not believe the adjustments are reflective of our
expectations of our future operating performance and believe these
non-GAAP measures are useful to investors because of their
comparability to our historical information.
The presentation of this financial information is not intended
to be considered in isolation or as a substitute for, or with
greater prominence to, the financial information prepared and
presented in accordance with GAAP. For more information on these
non-GAAP financial measures, please see the section captioned
"Reconciliation of Non-GAAP Financial Measures" included in the
accompanying financial tables, which includes more detail on the
GAAP financial measure that is most directly comparable to each
non-GAAP financial measure, and the related reconciliations between
these financial measures.
Forward-Looking Statements:
This press release contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 that
involve risks, uncertainties and assumptions, such as statements
regarding our future financial condition or results of operations
and our prospects and strategies for future growth. In many cases,
you can identify forward-looking statements by terms such as "may,"
"will," "should," "expects," "plans," "anticipates," "outlook,"
"believes," "intends," "estimates," "predicts," "potential" or the
negative of these terms or other comparable terminology. These
forward-looking statements also include our guidance and outlook
statements. These statements are based on management's current
expectations but they involve a number of risks and uncertainties.
Actual results and the timing of events could differ materially
from those anticipated in the forward-looking statements as a
result of risks and uncertainties, which include, without
limitation: our ability to maintain the value and reputation of our
brand; the acceptability of our products to our guests; our highly
competitive market and increasing competition; our reliance on and
limited control over third-party suppliers to provide fabrics for
and to produce our products; an economic downturn or economic
uncertainty in our key markets; increasing product costs and
decreasing selling prices; our ability to anticipate consumer
preferences and successfully develop and introduce new, innovative
and updated products; our ability to accurately forecast customer
demand for our products; our ability to safeguard against security
breaches with respect to our information technology systems; any
material disruption of our information systems; our ability to have
technology-based systems function effectively and grow our
e-commerce business globally; the fluctuating costs of raw
materials; our ability to expand internationally in light of our
limited operating experience and limited brand recognition in new
international markets; our ability to deliver our products to the
market and to meet customer expectations if we have problems with
our distribution system; imitation by our competitors; higher than
anticipated costs and our ability to realize the benefits
associated with the restructuring of our ivivva business; our
ability to protect our intellectual property rights; changes in tax
laws or unanticipated tax liabilities, capital or financing needs
in the United States, or our intentions with respect to the
reinvestment of foreign earnings; our ability to manage our growth
and the increased complexity of our business effectively; our
ability to cancel store leases if an existing or new store is not
profitable; increasing labor costs and other factors associated
with the production of our products in South and South East Asia;
our ability to successfully open new store locations in a timely
manner; our ability to source our merchandise profitably or at all;
our ability to comply with trade and other regulations; the
continued service of our senior management; seasonality;
fluctuations in foreign currency exchange rates; the operations of
many of our suppliers are subject to international and other risks;
our exposure to various types of litigation; actions of activist
stockholders; and other risks and uncertainties set out in filings
made from time to time with the United States Securities and
Exchange Commission and available at www.sec.gov, including,
without limitation, our most recent reports on Form 10-K and Form
10-Q. You are urged to consider these factors carefully in
evaluating the forward-looking statements contained herein and are
cautioned not to place undue reliance on such forward-looking
statements, which are qualified in their entirety by these
cautionary statements. The forward-looking statements made herein
speak only as of the date of this press release and we undertake no
obligation to publicly update such forward-looking statements to
reflect subsequent events or circumstances, except as may be
required by law.
lululemon athletica inc.
Condensed Consolidated Statements of
Operations
Unaudited; Expressed in thousands, except
per share amounts
Quarter Ended Two Quarters Ended July 30,
2017 July 31, 2016 July 30, 2017
July 31, 2016 Net revenue $ 581,054 $ 514,520
$ 1,101,361 $ 1,010,036 Costs of goods sold 283,632 260,359
547,044 516,744 Gross profit 297,422 254,161
554,317 493,292 As a percent of net revenue 51.2 % 49.4 % 50.3 %
48.8 % Selling, general and administrative expenses 225,524 180,202
424,665 361,744 As a percent of net revenue 38.8 % 35.0 % 38.6 %
35.8 % Asset impairments and restructuring costs 3,186 — 15,517 —
As a percent of net revenue 0.6 % — % 1.3 % — % Income from
operations 68,712 73,959 114,135 131,548 As a percent of net
revenue 11.8 % 14.4 % 10.4 % 13.0 % Other income (expense), net 812
578 1,719 92 Income before income tax
expense 69,524 74,537 115,854 131,640 Income tax expense 20,813
20,912 35,897 32,679 Net income $
48,711 $ 53,625 $ 79,957 $ 98,961
Basic earnings per share $ 0.36 $ 0.39 $ 0.59 $ 0.72 Diluted
earnings per share $ 0.36 $ 0.39 $ 0.58 $ 0.72 Basic
weighted-average shares outstanding 136,171 136,987 136,604 137,071
Diluted weighted-average shares outstanding 136,303 137,229 136,747
137,309
lululemon athletica inc.
Condensed Consolidated Balance Sheets
Unaudited; Expressed in thousands
July 30, 2017 January 29, 2017
ASSETS Current assets Cash and cash equivalents $ 721,212 $
734,846 Inventories 316,368 298,432 Prepaid and receivable income
taxes 66,161 81,190 Other current assets 67,281 48,269 Total
current assets 1,171,022 1,162,737 Property and equipment, net
426,961 423,499 Goodwill and intangible assets, net 24,749 24,557
Deferred income taxes and other non-current assets 64,191
46,748 Total assets $ 1,686,923 $ 1,657,541
LIABILITIES
AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $
19,049 $ 24,846 Accrued inventory liabilities 21,292 8,601 Accrued
compensation and related expenses 47,920 55,238 Income taxes
payable 6,519 30,290 Unredeemed gift card liability 56,170 70,454
Other accrued liabilities 73,341 52,561 Total current
liabilities 224,291 241,990 Deferred income tax liability 7,668
7,262 Other non-current liabilities 57,155 48,316 Stockholders'
equity 1,397,809 1,359,973 Total liabilities and
stockholders' equity $ 1,686,923 $ 1,657,541
lululemon athletica inc.
Condensed Consolidated Statements of Cash
Flows
Unaudited; Expressed in thousands
Two Quarters Ended July 30, 2017
July 31, 2016 Cash flows from operating activities Net
income $ 79,957 $ 98,961 Items not affecting cash 71,872 47,809
Changes in operating assets and liabilities (49,791 ) (45,577 ) Net
cash provided by operating activities 102,038 101,193 Net cash used
in investing activities (49,889 ) (71,261 ) Net cash used in
financing activities (91,910 ) (25,082 ) Effect of exchange rate
changes on cash 26,127 29,018 (Decrease) increase in
cash and cash equivalents (13,634 ) 33,868 Cash and cash
equivalents, beginning of period 734,846 501,482 Cash
and cash equivalents, end of period $ 721,212 $ 535,350
lululemon athletica inc.
Reconciliation of Non-GAAP Financial
Measures
Unaudited; Expressed in thousands, except
per share amounts
Constant dollar changes in net revenue, total comparable sales,
comparable store sales, direct to consumer net revenue, and direct
to consumer net revenue excluding the online warehouse sale
The below changes in net revenue, total comparable sales,
comparable store sales, direct to consumer net revenue, and direct
to consumer net revenue excluding the online warehouse sale show
the net change for the second quarter of fiscal 2017 compared to
the second quarter of fiscal 2016.
Net Revenue
TotalComparableSales1,2
ComparableStore
Sales2
Direct toConsumer
NetRevenue
Direct toConsumer
NetRevenueExcluding
theOnlineWarehouseSale
Increase (decrease) 13% 7% 2% 29% 15% Adjustments due to foreign
exchange rate changes — — — 1 1 Increase (decrease) in constant
dollars 13% 7% 2% 30% 16% __________ 1 Total
comparable sales includes comparable store sales and direct to
consumer sales. 2 Comparable store sales reflects net revenue from
company-operated stores that have been open for at least 12 months,
or open for at least 12 months after being significantly expanded.
Adjusted financial measures
The following table reconciles adjusted financial measures with
the most directly comparable measures calculated in accordance with
GAAP:
Quarter Ended July 30,
2017 Quarter Ended July 31, 2016 GAAP
Results Adjustments
AdjustedResults(Non-GAAP)
GAAP Results Adjustments
AdjustedResults(Non-GAAP)
Gross profit1 $ 297,422 $ 2,244 $ 299,666 $ 254,161 $ — $ 254,161
Gross margin1 51.2 % 0.4 % 51.6 % 49.4 % — % 49.4 % Income from
operations1,2 68,712 5,430 74,142 73,959 — 73,959 Operating
margin1,2 11.8 % 1.0 % 12.8 % 14.4 % — % 14.4 % Income before
income tax expense1,2,3 69,524 5,430 74,954 74,537 270 74,807
Income tax expense3,4 20,813 1,390 22,203 20,912 1,926 22,838
Effective tax rate3,4 29.9 % (0.3 )% 29.6 % 28.1 % 2.4 % 30.5 %
Diluted earnings per share1,2,3,4 $ 0.36 $ 0.03 $ 0.39 $ 0.39 $
(0.01 ) $ 0.38 __________ 1 During the second quarter
of fiscal 2017, we recognized costs in cost of goods sold totaling
$2.2 million to reduce the carrying value of certain ivivva branded
inventories to their estimated net realizable value, to record the
expected net loss on certain committed inventory purchases, and to
record accelerated depreciation. 2 During the second quarter of
fiscal 2017, we recognized costs in operating expenses totaling
$3.2 million for severance, lease terminations and other costs
related to the restructuring of our ivivva operations. 3 The
adjustments in the second quarter of fiscal 2016 relate to our
transfer pricing arrangements, the associated repatriation of
foreign earnings, and net interest costs. These adjustments were
recorded in income tax expense and other income (expense), net. 4
The adjustment to income tax expense for the second quarter of
fiscal 2017 represents the tax effect of the ivivva related
restructuring adjustments, calculated based on the expected annual
tax rate of the applicable tax jurisdictions.
Please refer to Notes 6 and 7 to the unaudited interim
consolidated financial statements included in Item 1 of Part I of
our Report on Form 10-Q to be filed with the SEC on or about
August 31, 2017 for further explanation as to the nature of
these items.
Adjusted expected gross margin, effective
tax rate, and diluted earnings per share
Quarter Ending October 29,
2017
Fiscal Year Ending January 28, 2018 Expected gross
margin 50.9 % 51.9 % Non-GAAP adjustments1 0.2 0.3
Adjusted expected gross margin 51.1 % 52.2 %
Quarter
Ending October 29, 2017 Fiscal Year Ending
January 28, 2018 Expected effective tax rate 32.2 % 30.8 %
Non-GAAP adjustments1 (1.8 ) (0.5 ) Adjusted expected effective tax
rate 30.4 % 30.3 %
Quarter Ending October 29,
2017 Fiscal Year Ending January 28, 2018 Expected
diluted earnings per share range $0.33 to $0.35 $2.04 to $2.11
Non-GAAP adjustments1 0.17 0.31 Adjusted expected
diluted earnings per share range $0.50 to $0.52 $2.35 to $2.42
__________ 1 These adjustments relate to the restructuring
of our ivivva operations. Please refer to Note 6 to the unaudited
interim consolidated financial statements included in Item 1 of
Part I of our Report on Form 10-Q to be filed with the SEC on or
about August 31, 2017 for further explanation as to the nature of
these items.
lululemon athletica inc.
Store Count and Square Footage1
Square Footage Expressed in Thousands
Number ofStores Open
attheBeginning ofthe Quarter
Number ofStores
OpenedDuring theQuarter
Number ofStores
ClosedDuring theQuarter3
Number ofStores Openat
the End ofthe Quarter
3rd Quarter 2016 379 12 2 389 4th Quarter 2016 389 17 — 406 1st
Quarter 2017 406 5 — 411 2nd Quarter 2017 411 11 1 421
Total GrossSquare Feet
atthe Beginningof the Quarter
Gross SquareFeet
AddedDuring theQuarter2
Gross SquareFeet
LostDuring theQuarter2, 3
Total GrossSquare Feet
atthe End of theQuarter
3rd Quarter 2016 1,117 32 5 1,144 4th Quarter 2016 1,144 47 1 1,190
1st Quarter 2017 1,190 14 — 1,204 2nd Quarter 2017 1,204 37 3 1,238
__________ 1 Store count and square footage summary
includes company-operated stores which are branded lululemon or
ivivva. Excludes retail locations operated by third parties under
license and supply arrangements. 2 Gross square feet added/lost
during the quarter includes net square foot additions for
company-operated stores which have been renovated or relocated in
the quarter. 3 Subsequent to quarter end, on August 20, 2017, as
part of the restructuring of its ivivva operations, the Company
closed 47 of the 55 ivivva branded company-operated stores. Of the
eight remaining ivivva branded stores, seven are expected to remain
in operation and one is expected to be converted to a lululemon
branded store.
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Investors:ICR, Inc.Joseph Teklits/Caitlin
Morahan203-682-8200orMedia:BrunswickMike France/Laura
Buchanan917-676-5802 / +44 797 498 2492orlululemon athletica
inc.Allison Reid, +44 787 576 2283
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