LULU
$65.19
Lululemon Athletica
($.54)
(.82%)
Earnings Details
2nd Quarter July 2016
Thursday, September 01, 2016 4:05:01 PM
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Summary

Lululemon Athletica Misses

Lululemon Athletica (LULU) reported 2nd Quarter July 2016 earnings of $0.38 per share on revenue of $514.5 million. The consensus earnings estimate was $0.38 per share on revenue of $513.5 million. The Earnings Whisper number was $0.39 per share. Revenue grew 13.6% on a year-over-year basis.

The company said it expects third quarter earnings of $0.42 to $0.44 per share on revenue of $535.0 million to $545.0 million. The current consensus earnings estimate is $0.44 per share on revenue of $542.4 million for the quarter ending October 31, 2016. The company said it expects fiscal year earnings of $2.07 to $2.15 per share on revenue of $2.325 billion to $2.35 billion. The company's previous guidance was earnings of $2.05 to $2.15 per share on revenue of $2.305 billion to $2.345 billion and the current consensus earnings estimate is $2.18 per share on revenue of $2.34 billion for the year ending January 31, 2017.

Lululemon Athletica Inc is a designer and retailer of technical athletic apparel operating primarily in North America and Australia. Its yoga-inspired apparel is marketed under the lululemon athletica and ivivva athletica brand names.

Results
Reported Earnings
$0.38
Earnings Whisper
$0.39
Consensus Estimate
$0.38
Reported Revenue
$514.5 Mil
Revenue Estimate
$513.5 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

lululemon athletica inc. Announces Second Quarter Fiscal 2016 Results

lululemon athletica inc. (LULU) today announced financial results for the second quarter ended July 31, 2016.

For the second quarter ended July 31, 2016:

Net revenue increased by 14% to $514.5 million from $453.0 million in the second quarter of fiscal 2015, or increased by 15% on a constant dollar basis.

Total comparable sales, which includes comparable store sales and direct to consumer, increased by 4%, or by 5% on a constant dollar basis.

Comparable store sales increased by 3%, or by 4% on a constant dollar basis.

Direct to consumer net revenue increased by 6% to $87.4 million, or by 7% on a constant dollar basis. In the second quarter of fiscal 2015 we held an online warehouse sale. Excluding the impact of this online warehouse sale, direct to consumer net revenue would have increased by 16%.

Gross profit increased by 20% to $254.2 million, and as a percentage of net revenue gross profit was 49.4% compared to 46.8% in the second quarter of fiscal 2015.

Income from operations increased by 11% to $74.0 million from $66.6 million in the second quarter of fiscal 2015, and as a percentage of net revenue was 14.4% compared to 14.7% of net revenue in the second quarter of fiscal 2015.

Income tax expense was $20.9 million, which included a net income tax recovery of $1.9 million related to the Company’s transfer pricing arrangements and the associated plan to repatriate foreign earnings. In addition, there was a related net interest expense of $0.3 million. 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. Excluding the above tax and related interest adjustments, the effective tax rate 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.

During the second quarter of fiscal 2016, the Company repurchased 0.2 million shares of the Company’s common stock at an average cost of $63.65 per share, completing our approved stock repurchase program.

The Company ended the second quarter of fiscal 2016 with $535.3 million in cash and cash equivalents compared to $541.3 million at the end of the second quarter of fiscal 2015. Inventories at the end of the second quarter of fiscal 2016 decreased by 1% to $277.3 million compared to $280.6 million at the end of the second quarter of fiscal 2015. The Company ended the quarter with 379 stores.

Laurent Potdevin, lululemon’s CEO, stated: "The second quarter demonstrated strong results as we delivered sales and EPS at the high-end of our guidance and saw an important inflection in our gross margin and earnings performance."

Mr. Potdevin continued: "Our progress in the second quarter, especially in gross margin and inventory, marks the beginning of our recovery in profitability and sustainable long term growth."

Updated Outlook

For the third quarter of fiscal 2016, we expect net revenue to be in the range of $535 million to $545 million based on total comparable sales in the mid-single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $0.42 to $0.44 for the quarter. This guidance assumes 137.5 million diluted weighted-average shares outstanding and a 30.5% tax rate.

For the full fiscal 2016, we now expect net revenue to be in the range of $2.325 billion to $2.350 billion based on total comparable sales in the mid-single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $2.11 to $2.19 for the full year, or $2.07 to $2.15 normalized for the tax and related interest adjustments made during the first two quarters of fiscal 2016. This guidance assumes 137.5 million diluted weighted-average shares outstanding and a 28.7% tax rate, or 30.5% excluding the above tax and related interest adjustments.

Conference Call Information

A conference call to discuss second quarter results is scheduled for today, September 1, 2016, 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. (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, and direct to consumer net revenue, and the effective tax rate and diluted earnings per share excluding certain tax and related interest adjustments, are not United States generally accepted accounting principle ("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. 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 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, including any negative publicity regarding our products or the production methods of our suppliers or manufacturers; the acceptability of our products to our guests, including receiving products that comply with our technical specifications and quality standards; 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 manage our growth and the increased complexity of our business effectively; 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; 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 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 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 ability to source our merchandise profitably or at all; 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
Thirteen Weeks
Thirteen Weeks
Twenty-Six
Twenty-Six
Ended
Ended
Weeks Ended
Weeks Ended
July 31, 2016
August 2, 2015
July 31, 2016
August 2, 2015
Net revenue
$ 514,520
$ 453,010
$ 1,010,036
$ 876,554
Costs of goods sold
260,359
240,985
516,744
458,652
Gross profit
254,161
212,025
493,292
417,902
As a percent of net revenue
49.4 %
46.8 %
48.8 %
47.7 %
Selling, general and administrative expenses
180,202
145,446
361,744
283,287
As a percent of net revenue
35.0 %
32.1 %
35.8 %
32.3 %
Income from operations
73,959
66,579
131,548
134,615
As a percent of net revenue
14.4 %
14.7 %
13.0 %
15.4 %
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
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 shares outstanding
136,987
141,372
137,071
141,656
Diluted weighted-average shares outstanding
137,229
141,644
137,309
141,977
lululemon athletica inc.
Condensed Consolidated Balance Sheets
Unaudited; Expressed in thousands
July 31,
January 31,
2016
2016
ASSETS
Current assets
Cash and cash equivalents
$
535,350
$
501,482
Inventories
277,279
284,009
Prepaid and receivable income taxes
98,678
91,453
Other current assets
51,376
40,095
Total current assets
962,683
917,039
Property and equipment, net
395,010
349,605
Goodwill and intangible assets, net
24,897
24,777
Deferred income taxes and other non-current assets
32,911
22,656
Total assets
$ 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
Total current liabilities
197,438
225,504
Deferred income tax liability
11,198
10,759
Other non-current liabilities
50,663
50,332
Stockholders’ equity
1,156,202
1,027,482
Total liabilities and stockholders’ equity
$ 1,415,501
$
1,314,077
lululemon athletica inc.
Condensed Consolidated Statements of Cash Flows
Unaudited; Expressed in thousands
Twenty-Six
Twenty-Six
Weeks Ended
Weeks Ended
July 31, 2016
August 2, 2015
Cash flows from operating activities
Net income
$
98,961
$
95,478
Items not affecting cash
46,604
38,163
Changes in operating assets and liabilities
(45,577 )
(101,480 )
Net cash provided by operating activities
99,988
32,161
Net cash used in investing activities
(71,261 )
(65,118 )
Net cash used in 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 )
Cash and cash equivalents, beginning of period
501,482
664,479
Cash and cash equivalents, end of period
$ 535,350
$ 541,262
lululemon athletica inc.
Reconciliation of Non-GAAP Financial Measures
Unaudited
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
Thirteen Weeks Ended
July 31, 2016
August 2, 2015
(In thousands)
(Percentage)
(In thousands)
(Percentage)
Net revenue increase
$ 61,510
14 %
$ 62,302
16 %
Adjustments due to foreign exchange rate changes
5,251
1
20,293
5
Net revenue increase in constant dollars
$ 66,761
15 %
$ 82,595
21 %
Constant dollar changes in total comparable sales
Thirteen Weeks
Thirteen Weeks
Ended
Ended
July 31, 2016
August 2, 2015
Increase in total comparable sales(1)
4 %
6 %
Adjustments due to foreign exchange rate changes
1
5
Increase in total comparable sales in constant dollars(1)
5 %
11 %
__________
(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
Thirteen Weeks
Ended
Ended
July 31, 2016
August 2, 2015
Increase in comparable store sales(1)
3 %
1 %
Adjustments due to foreign exchange rate changes
1
5
Increase in comparable store sales in constant dollars(1)
4 %
6 %
__________
(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
Thirteen Weeks
Ended
Ended
July 31, 2016
August 2, 2015
Increase in direct to consumer net revenue
6 %
30 %
Adjustments due to foreign exchange rate changes
1
5
Increase in direct to consumer net revenue in constant dollars
7 %
35 %
Effective tax rate, excluding tax and related interest
adjustments
Thirteen Weeks
Thirteen Weeks
Twenty-Six
Twenty-Six
Ended
Ended
Weeks Ended
Weeks Ended
July 31, 2016
August 2, 2015
July 31, 2016
August 2, 2015
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)These adjustments relate to the Company’s transfer
pricing arrangements and the associated plan to repatriate foreign
earnings. Please refer to Note 7 to the unaudited interim
consolidated financial statements included in Item 1 of Part I of
the Company’s Report on Form 10-Q to be filed with the SEC on or
about September 1, 2016 for an explanation as to the nature of these
items.
Diluted earnings per share, excluding tax and related interest
adjustments
Thirteen Weeks
Thirteen Weeks
Twenty-Six
Twenty-Six
Ended
Ended
Weeks Ended
Weeks Ended
July 31, 2016
August 2, 2015
July 31, 2016
August 2, 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
$ 0.38
$
0.34
$ 0.68
$
0.67
adjustments
__________
(1)These adjustments relate to the Company’s transfer
pricing arrangements and the associated plan to repatriate foreign
earnings. Please refer to Note 7 to the unaudited interim
consolidated financial statements included in Item 1 of Part I of
the Company’s Report on Form 10-Q to be filed with the SEC on or
about September 1, 2016 for an explanation as to the nature of these
items.
lululemon athletica inc.
Store Count and Square Footage(1)
Twenty-Six Weeks Ended July 31, 2016
Square Footage Expressed in Thousands
Number of
Number of
Number of
Number of
Stores Open at
Stores Opened
Stores Closed
Stores Open
the
During the
During the
at the End of
Beginning
Quarter
Quarter
the
of
Quarter
the Quarter
1st Quarter
363
11
1
373
2nd Quarter
373
6
--
379
Total Gross
Gross Square
Gross Square
Total Gross
Square Feet at
Feet Added
Feet Lost
Square Feet at
the
During the
During the
the End of
Beginning
Quarter(2)
Quarter(2)
the
of the Quarter
Quarter
1st Quarter
1,071
26
2
1,095
2nd Quarter
1,095
22
--
1,117
__________
(1)Store count and square footage summary includes
company-operated stores which are branded lululemon athletica or
ivivva athletica. Excludes retail locations operated by a third
party under a license and supply arrangement.
(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.

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SOURCE: lululemon athletica inc.

Investor:
ICR, Inc.
Joseph Teklits/Caitlin Morahan, 203-682-8200
or
Media:
ICR, Inc.
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