LULU
$339.99
Lululemon Athletica
($6.38)
(1.84%)
Earnings Details
3rd Quarter October 2020
Thursday, December 10, 2020 4:05:00 PM
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Summary

Lululemon Athletica Beats

Lululemon Athletica (LULU) reported 3rd Quarter October 2020 earnings of $1.16 per share on revenue of $1.1 billion. The consensus earnings estimate was $0.87 per share on revenue of $1.0 billion. The Earnings Whisper number was $0.95 per share. Revenue grew 22.0% on a year-over-year basis.

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
$1.16
Earnings Whisper
$0.95
Consensus Estimate
$0.87
Reported Revenue
$1.12 Bil
Revenue Estimate
$1.01 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

lululemon athletica inc. Announces Third Quarter Fiscal 2020 Results

Revenue increased 22% to $1.1 billion

Comparable sales increased 19%, or 18% on a constant dollar basis

Diluted EPS of $1.10, Adjusted EPS of $1.16

VANCOUVER, British Columbia--(BUSINESS WIRE)--

lululemon athletica inc. (NASDAQ:LULU) today announced financial results for the third quarter of fiscal 2020.

Calvin McDonald, Chief Executive Officer, stated: "Our third quarter results demonstrate the strength of lululemon across channels and markets, both in North America and around the world. Our product innovations, investments in the e-commerce business, and strategic acquisition of MIRROR position us well to serve our guests as their needs evolve across both physical and digital experiences."

For the third quarter of fiscal 2020, compared to the third quarter of fiscal 2019

  • Net revenue increased 22% to $1.1 billion. On a constant dollar basis, net revenue increased 21%.

– Net revenue increased 19% in North America, and increased 45% internationally.

  • Total comparable sales increased 19%, or increased 18% on a constant dollar basis.

Direct to consumer net revenue increased 94%, or increased 93% on a constant dollar basis.

– Comparable store productivity was 83%, or 82% on a constant dollar basis, representing a comparable store sales decrease of 17%, or a decrease of 18% on a constant dollar basis.

  • Direct to consumer net revenue represented 42.8% of total net revenue compared to 26.9% for the third quarter of fiscal 2019.
  • Gross profit increased 24% to $627.4 million and gross margin increased 100 basis points to 56.1%.
  • Income from operations increased 17% to $204.9 million. Adjusted income from operations increased 21% to $213.5 million.
  • Operating margin decreased 90 basis points to 18.3%. Adjusted operating margin decreased 10 basis points to 19.1%.
  • Income tax expense increased 17% to $60.7 million. The effective tax rate for the third quarter of fiscal 2020 was 29.7% compared to 29.1% for the third quarter of fiscal 2019. The adjusted effective tax rate was 28.9% for the third quarter of fiscal 2020.
  • Diluted earnings per share were $1.10 compared to $0.96 in the third quarter of fiscal 2019. Adjusted diluted earnings per share were $1.16 for the third quarter of fiscal 2020.
  • The Company opened nine net new company-operated stores during the quarter, ending with 515 stores.

The summary above provides both GAAP and adjusted non-GAAP financial measures. The adjusted financial measures exclude certain costs incurred in connection with the acquisition of MIRROR, and the related tax effects.

Meghan Frank, Chief Financial Officer, stated: "Our performance this quarter was driven by strong omni momentum, with notable strength in conversion and increased traffic to our e-commerce sites." Frank continued, "We have planned the fourth quarter based on multiple performance scenarios and believe we are well positioned for the holiday season."

Balance sheet highlights

The Company ended the third quarter of fiscal 2020 with $481.6 million in cash and cash equivalents and the capacity under its committed revolving credit facilities was $697.3 million. Inventories at the end of the third quarter of fiscal 2020 increased 23% to $771.0 million compared to $627.1 million at the end of the third quarter of fiscal 2019.

Share repurchase and cancellation of 364-day credit facility

The Company announced that on December 1, 2020, the board of directors approved an increase in its share repurchase authorization from $263.6 million to $500.0 million. The timing, pricing, and actual number of common shares to be repurchased will depend upon prevailing market conditions, applicable legal requirements, and other factors. The repurchase plan has no time limit.

The Company also announced that on December 4, 2020, it had given notice to terminate its 364-day unsecured revolving credit facility. The $300.0 million facility was due to mature on June 28, 2021 and will be terminated without penalty on December 11, 2020. The Company continues to maintain its unsecured five-year revolving credit facility of $400.0 million which matures on June 6, 2023.

COVID-19 Pandemic and fiscal 2020 outlook

As a result of the COVID-19 pandemic, all of the Company's retail locations in North America, Europe, and certain countries in Asia Pacific were temporarily closed during the first quarter of fiscal 2020. The Company began reopening its retail locations in these markets during the second quarter of fiscal 2020 and almost all locations were open during the third quarter of fiscal 2020. Subsequent to November 1, 2020, while almost all of the Company's retail locations have remained open, it has experienced some temporary closures and is currently operating with tighter capacity restrictions in certain markets.

Due to the impact that COVID-19 is having across the globe, and the rapid and continuous developments, the Company is not providing detailed financial guidance for fiscal 2020 at this time.

Conference Call Information

A conference call to discuss third quarter results is scheduled for today, December 10, 2020, 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, creating transformational products and experiences which enable people to live a life they love. Setting the bar in technical fabrics and functional designs, lululemon works with yogis and athletes in local communities for continuous research and product feedback. For more information, visit www.lululemon.com.

Non-GAAP Financial Measures

Constant dollar changes and 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. The Company provides constant dollar changes in its results to help investors understand the underlying growth rate of net revenue excluding the impact of changes in foreign exchange rates.

Adjusted income from operations, operating margin, income tax expense, effective tax rates, net income, and diluted earnings per share exclude items related to the MIRROR acquisition. We exclude transaction, integration costs, the gain on lululemon's previous investment in MIRROR, certain acquisition-related compensation costs, and the related income tax effects of these items. The acquisition-related compensation costs primarily relate to the acceleration of vesting of certain stock options upon acquisition, and to deferred consideration of $57.1 million in which is due to certain MIRROR employees subject to their continued employment through various vesting dates up to three years from the acquisition date. These individuals also receive employment compensation separate from the deferred amounts that is commensurate with the services they provide and which we consider to be normal operating expenses within selling, general and administrative expenses. We believe these adjusted financial measures are useful to investors as they provide supplemental information that enable evaluation of the underlying trend in our operating performance, and enable a more consistent comparison to our historical financial information. Further, due to the finite and discrete nature of these costs, we do not consider them to be normal operating expenses that are necessary to operate the MIRROR business and we do not expect them to recur beyond the expiry of the related vesting periods. Management uses these adjusted financial measures and constant currency metrics internally when reviewing and assessing financial performance.

The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or with greater prominence to, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the section captioned "Reconciliation of Non-GAAP Financial Measures" included in the accompanying financial tables, which includes more detail on the GAAP financial measure that is most directly comparable to each non-GAAP financial measure, and the related reconciliations between these financial measures.

Forward-Looking Statements:

This press release includes estimates, projections, statements relating to the Company's business plans, objectives, and expected operating results that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In many cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "outlook," "believes," "intends," "estimates," "predicts," "potential" or the negative of these terms or other comparable terminology. These forward-looking statements also include the Company's 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: the Company's ability to maintain the value and reputation of its brand; the current COVID-19 coronavirus pandemic and related government, private sector, and individual consumer responsive actions; its highly competitive market and increasing competition; increasing product costs and decreasing selling prices; its ability to anticipate consumer preferences and successfully develop and introduce new, innovative and updated products; its ability to accurately forecast guest demand for its products; changes in consumer shopping preferences and shifts in distribution channels; its ability to expand internationally in light of its limited operating experience and limited brand recognition in new international markets; its ability to realize the potential benefits and synergies sought with the acquisition of MIRROR; its ability to manage its growth and the increased complexity of its business effectively; its ability to successfully open new store locations in a timely manner; seasonality; its reliance on and limited control over third-party suppliers to provide fabrics for and to produce its products; the operations of many of its suppliers are subject to international and other risks; suppliers or manufacturers not complying with its Vendor Code of Ethics or applicable laws; its ability to deliver its products to the market and to meet guest expectations if it has problems with its distribution system; increasing labor costs and other factors associated with the production of its products in South and South East Asia; its ability to safeguard against security breaches with respect to its information technology systems; any material disruption of its information systems; its ability to have technology-based systems function effectively and grow its e-commerce business globally; an economic recession, depression, or downturn or economic uncertainty in its key markets; global economic and political conditions and global events such as health pandemics; its ability to source and sell its merchandise profitably or at all if new trade restrictions are imposed or existing trade restrictions become more burdensome; changes in tax laws or unanticipated tax liabilities; its ability to comply with trade and other regulations; fluctuations in foreign currency exchange rates; imitation by its competitors; its ability to protect its intellectual property rights; conflicting trademarks and the prevention of sale of certain products; its exposure to various types of litigation; 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, its 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 the Company undertakes 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

 

Three Quarters Ended

 

 

November 1,
2020

 

November 3,
2019

 

November 1,
2020

 

November 3,
2019

Net revenue

 

$

1,117,426

 

 

$

916,138

 

 

$

2,672,330

 

 

$

2,581,805

 

Costs of goods sold

 

490,072

 

 

411,094

 

 

1,221,073

 

 

1,169,245

 

Gross profit

 

627,354

 

 

505,044

 

 

1,451,257

 

 

1,412,560

 

As a percent of net revenue

 

56.1%

 

55.1%

 

54.3%

 

54.7%

Selling, general and administrative expenses

 

411,662

 

 

329,208

 

 

1,064,172

 

 

939,930

 

As a percent of net revenue

 

36.8%

 

35.9%

 

39.8%

 

36.4%

Amortization of intangible assets

 

2,241

 

 

7

 

 

2,965

 

 

7

 

Acquisition-related expenses

 

8,531

 

 

 

 

22,040

 

 

 

Income from operations

 

204,920

 

 

175,829

 

 

362,080

 

 

472,623

 

As a percent of net revenue

 

18.3%

 

19.2%

 

13.5%

 

18.3%

Other income (expense), net

 

(580)

 

 

1,925

 

 

250

 

 

6,154

 

Income before income tax expense

 

204,340

 

 

177,754

 

 

362,330

 

 

478,777

 

Income tax expense

 

60,697

 

 

51,772

 

 

103,254

 

 

131,202

 

Net income

 

$

143,643

 

 

$

125,982

 

 

$

259,076

 

 

$

347,575

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

1.10

 

 

$

0.97

 

 

$

1.99

 

 

$

2.67

 

Diluted earnings per share

 

$

1.10

 

 

$

0.96

 

 

$

1.98

 

 

$

2.65

 

Basic weighted-average shares outstanding

 

130,318

 

 

130,282

 

 

130,271

 

 

130,420

 

Diluted weighted-average shares outstanding

 

130,924

 

 

130,805

 

 

130,842

 

 

130,975

 

lululemon athletica inc.

Condensed Consolidated Balance Sheets

Unaudited; Expressed in thousands

 

 

November 1,
2020

 

February 2,
2020

 

November 3,
2019

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

481,581

 

 

$

1,093,505

 

 

$

586,153

 

Inventories

 

770,990

 

 

518,513

 

 

627,102

 

Prepaid and receivable income taxes

 

168,272

 

 

85,159

 

 

126,715

 

Other current assets

 

179,970

 

 

110,761

 

 

111,706

 

Total current assets

 

1,600,813

 

 

1,807,938

 

 

1,451,676

 

Property and equipment, net

 

719,880

 

 

671,693

 

 

656,372

 

Right-of-use lease assets

 

714,086

 

 

689,664

 

 

652,492

 

Goodwill and intangible assets, net

 

468,908

 

 

24,423

 

 

24,478

 

Deferred income taxes and other non-current assets

 

124,233

 

 

87,636

 

 

70,126

 

Total assets

 

$

3,627,920

 

 

$

3,281,354

 

 

$

2,855,144

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

160,779

 

 

$

79,997

 

 

$

116,281

 

Accrued inventory liabilities

 

10,654

 

 

6,344

 

 

10,074

 

Other accrued liabilities

 

190,366

 

 

112,641

 

 

121,144

 

Accrued compensation and related expenses

 

96,527

 

 

133,688

 

 

98,442

 

Current lease liabilities

 

138,082

 

 

128,497

 

 

131,385

 

Current income taxes payable

 

5,818

 

 

26,436

 

 

12,351

 

Unredeemed gift card liability

 

104,760

 

 

120,413

 

 

75,025

 

Other current liabilities

 

23,892

 

 

12,402

 

 

10,067

 

Total current liabilities

 

730,878

 

 

620,418

 

 

574,769

 

Non-current lease liabilities

 

635,386

 

 

611,464

 

 

563,925

 

Non-current income taxes payable

 

43,150

 

 

48,226

 

 

48,226

 

Deferred income tax liability

 

47,199

 

 

43,432

 

 

14,190

 

Other non-current liabilities

 

8,354

 

 

5,596

 

 

5,298

 

Stockholders' equity

 

2,162,953

 

 

1,952,218

 

 

1,648,736

 

Total liabilities and stockholders' equity

 

$

3,627,920

 

 

$

3,281,354

 

 

$

2,855,144

 

lululemon athletica inc.

Condensed Consolidated Statements of Cash Flows

Unaudited; Expressed in thousands

 

 

Three Quarters Ended

 

 

November 1,
2020

 

November 3,
2019

Cash flows from operating activities

 

 

 

 

Net income

 

$

259,076

 

 

$

347,575

 

Adjustments to reconcile net income to net cash provided by operating activities

 

(173,672)

 

 

(252,469)

 

Net cash provided by operating activities

 

85,404

 

 

95,106

 

Net cash used in investing activities

 

(616,544)

 

 

(212,475)

 

Net cash used in financing activities

 

(81,404)

 

 

(179,555)

 

Effect of exchange rate changes on cash

 

620

 

 

1,757

 

Decrease in cash and cash equivalents

 

(611,924)

 

 

(295,167)

 

Cash and cash equivalents, beginning of period

 

1,093,505

 

 

881,320

 

Cash and cash equivalents, end of period

 

$

481,581

 

 

$

586,153

 

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, and direct to consumer net revenue

The below changes show the change compared to the corresponding period in the prior year.

 

 

Quarter Ended
November 1, 2020

 

 

Net Revenue

 

Total
Comparable
Sales1,2

 

Comparable
Store Sales2

 

Direct to
Consumer Net
Revenue

Change

 

22

%

 

19

%

 

(17)

%

 

94

%

Adjustments due to foreign exchange rate changes

 

(1)

 

 

(1)

 

 

(1)

 

 

(1)

 

Change in constant dollars

 

21

%

 

18

%

 

(18)

%

 

93

%

__________

  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 full fiscal months, or open for at least 12 full fiscal months after being significantly expanded. Comparable store sales exclude sales from stores which have been temporarily relocated for renovations or have been temporarily closed for at least 30 days.

Constant dollar changes in comparable store productivity

The below table shows comparable store sales1 as a percentage of the net revenue generated from these company-operated stores in the corresponding period of the prior year.

 

 

Quarter Ended
November 1,
2020

Comparable store productivity

 

83

%

Adjustments due to foreign exchange rate changes

 

(1)

 

Comparable store productivity in constant dollars

 

82

%

__________

  1. Comparable store sales reflects net revenue from company-operated stores that have been open for at least 12 full fiscal months, or open for at least 12 full fiscal months after being significantly expanded. Comparable store sales exclude sales from stores which have been temporarily relocated for renovations or have been temporarily closed for at least 30 days.

Adjusted financial measures

The following tables reconcile adjusted financial measures with the most directly comparable measures calculated in accordance with GAAP. The adjustments relate to the acquisition of MIRROR and its related tax effects. Please refer to Note 3 to the unaudited 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 December 10, 2020 for further information on these adjustments.

 

 

Quarter Ended November 1, 2020

 

 

Income from
Operations

 

Operating
Margin

 

Income Tax
Expense

 

Effective Tax
Rate

 

Net Income

 

Diluted
Earnings Per
Share

GAAP results

 

$

204,920

 

 

18.3

%

 

$

60,697

 

 

29.7

%

 

$

143,643

 

 

$

1.10

 

Transaction and integration costs

 

1,017

 

 

0.1

 

 

 

 

 

 

1,017

 

 

0.01

 

Acquisition-related compensation

 

7,514

 

 

0.7

 

 

 

 

 

 

7,514

 

 

0.06

 

Tax effect of the above

 

 

 

 

 

896

 

 

(0.8)

 

 

(896)

 

 

(0.01)

 

Adjusted results (non-GAAP)

 

$

213,451

 

 

19.1

%

 

$

61,593

 

 

28.9

%

 

$

151,278

 

 

$

1.16

 

 

 

Three Quarters Ended November 1, 2020

 

 

Income from
Operations

 

Operating
Margin

 

Income Tax
Expense

 

Effective Tax
Rate

 

Net Income

 

Diluted
Earnings Per
Share

GAAP results

 

$

362,080

 

 

13.5

%

 

$

103,254

 

 

28.5

%

 

$

259,076

 

 

$

1.98

 

Transaction and integration costs

 

10,263

 

 

0.4

 

 

 

 

 

 

10,263

 

 

0.08

 

Gain on existing investment

 

(782)

 

 

 

 

 

 

 

 

(782)

 

 

(0.01)

 

Acquisition-related compensation

 

12,559

 

 

0.5

 

 

 

 

 

 

12,559

 

 

0.10

 

Tax effect of the above

 

 

 

 

 

2,862

 

 

(0.9)

 

 

(2,862)

 

 

(0.02)

 

Adjusted results (non-GAAP)

 

$

384,120

 

 

14.4

%

 

$

106,117

 

 

27.6

%

 

$

278,254

 

 

$

2.13

 

lululemon athletica inc.

Company-operated Store Count and Square Footage1

Square Footage Expressed in Thousands

 

 

 

Number of
Stores Open at
the
Beginning of
the Quarter

 

Number of
Stores Opened
During the
Quarter

 

Number of
Stores Closed
During the
Quarter

 

Number of
Stores Open
at the End of
the Quarter

4th Quarter 2019

 

479

 

 

16

 

 

4

 

 

491

 

1st Quarter 2020

 

491

 

 

4

 

 

6

 

 

489

 

2nd Quarter 2020

 

489

 

 

17

 

 

 

 

506

 

3rd Quarter 2020

 

506

 

 

11

 

 

2

 

 

515

 

 

 

Total Gross
Square Feet at
the Beginning of
the Quarter

 

Gross Square
Feet Added
During the
Quarter2

 

Gross Square
Feet Lost
During the
Quarter2

 

Total Gross
Square Feet at
the End of the
Quarter

4th Quarter 2019

 

1,604

 

 

87

 

 

11

 

 

1,680

 

1st Quarter 2020

 

1,680

 

 

24

 

 

12

 

 

1,692

 

2nd Quarter 2020

 

1,692

 

 

65

 

 

 

 

1,757

 

3rd Quarter 2020

 

1,757

 

 

54

 

 

3

 

 

1,808

 

__________

1Company-operated store count and square footage summary excludes retail locations operated by third parties under license and supply arrangements.

2Gross square feet added/lost during the quarter includes net square foot additions for company-operated stores which have been renovated or relocated in the quarter.

Investors:
lululemon athletica inc.
Howard Tubin
1-604-732-6124
or
ICR, Inc.
Joseph Teklits/Caitlin Churchill
1-203-682-8200

Media:
lululemon athletica inc.
Erin Hankinson
1-604-732-6124
or
Brunswick Group
Eleanor French
1-415-671-7676

Source: lululemon athletica inc.