LULU Lululemon Athletica Inc

Revenue increased 2% to $903 million Diluted EPS of $0.66, Adjusted EPS of $0.74

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

The summary below 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.

As a result of the COVID-19 pandemic, all of the Company's stores 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. As of August 2, 2020, 492 of its 506 company-operated stores were open.

For the second quarter ended August 2, 2020:

• Net revenue was $902.9 million, an increase of 2% compared to the second quarter of fiscal 2019. On a constant dollar basis, net revenue increased 3%.
• Company-operated stores net revenue was $287.2 million, a decrease of 51% compared to the second quarter of fiscal 2019.
• Direct to consumer net revenue was $554.3 million, an increase of 155% compared to the second quarter of fiscal 2019. On constant dollar basis, direct to consumer net revenue increased 157%.
• Direct to consumer net revenue represented 61.4% of total net revenue compared to 24.6% for the second quarter of fiscal 2019.
• Gross profit was $489.5 million, an increase of 1% compared to the second quarter of fiscal 2019.
• Gross margin was 54.2%, a decrease of 80 basis points compared to the second quarter of fiscal 2019.
• Income from operations was $124.4 million, a decrease of 26% compared to the second quarter of fiscal 2019. Adjusted income from operations decreased by 19% to $135.9 million.
• Operating margin was 13.8%, a decrease of 520 basis points compared to the second quarter of fiscal 2019. Adjusted operating margin was 15.0%, a decrease of 400 basis points.
• Income tax expense was $37.3 million compared to $44.8 million in the second quarter of fiscal 2019 and the effective tax rate was 30.0% compared to 26.4% for the second quarter of fiscal 2019. The adjusted effective tax rate was 28.9% for the second quarter of fiscal 2020.
• Diluted earnings per share were $0.66 compared to $0.96 in the second quarter of fiscal 2019. Adjusted diluted earnings per share were $0.74 for the second quarter of fiscal 2020.

The Company ended the second quarter of fiscal 2020 with $523.0 million in cash and cash equivalents and the capacity under its committed revolving credit facilities was $697.7 million. The Company had $623.7 million in cash and cash equivalents at the end of the second quarter of fiscal 2019. Inventories at the end of the second quarter of fiscal 2020 increased 36% to $672.8 million compared to $494.3 million at the end of the second quarter of fiscal 2019. The Company ended the quarter with 506 stores.

Calvin McDonald, CEO of lululemon stated: "We're pleased with our overall business results for the second quarter, as lululemon increasingly lives into its Omni potential. As trends around the world are shifting to working and sweating from home with an increased focus on health and wellness, we believe 2020 is likely an inflection point for retail and for lululemon." McDonald continued: "We are cautiously optimistic with regard to the second half of the year as we continue to navigate the uncertain environment."

Fiscal 2020 Outlook

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 second quarter results is scheduled for today, September 8, 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.

Comparable Store Sales and Total Comparable Sales

The Company typically believes that investors would find comparable store sales and total comparable sales useful in assessing the performance of its business. As the temporary store closures from COVID-19 have resulted in a significant number of stores being removed from its comparable store base, the Company believes total comparable sales and comparable store sales are not currently representative of the underlying trends of its business. The Company does not believe these metrics are currently useful to investors in understanding performance, therefore it has not included these metrics in this press release.

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: its 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; the acceptability of its products to its guests; its highly competitive market and increasing competition; its reliance on and limited control over third-party suppliers to provide fabrics for and to produce its products; suppliers or manufacturers not complying with its Vendor Code of Ethics or applicable laws; the operations of many of its suppliers are subject to international and other risks; an economic recession, depression, or downturn or economic uncertainty in its key markets; 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; 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; changes in consumer shopping preferences and shifts in distribution channels; the fluctuating costs of raw materials; its ability to expand internationally in light of its limited operating experience and limited brand recognition in new international markets; global economic and political conditions and global events such as health pandemics; its ability to deliver its products to the market and to meet guest expectations if it has problems with its distribution system; imitation by its competitors; its ability to protect its intellectual property rights; 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; its ability to realize the potential benefits and synergies sought with the acquisition of MIRROR, its operating flexibility given the significant costs incurred in connection with the acquisition of MIRROR, its ability to grow the MIRROR business and have it achieve profitability; changes in tax laws or unanticipated tax liabilities; its ability to manage its growth and the increased complexity of its business effectively; its 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 its products in South and South East Asia; its ability to successfully open new store locations in a timely manner; its ability to comply with trade and other regulations; the service of its senior management; seasonality; fluctuations in foreign currency exchange rates; conflicting trademarks and the prevention of sale of certain products; its exposure to various types of litigation; actions of activist stockholders; anti-takeover provisions in its certificate of incorporation and bylaws; 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

 

Two Quarters Ended

 

 

August 2, 2020

 

August 4, 2019

 

August 2, 2020

 

August 4, 2019

Net revenue

 

$

902,942

 

 

$

883,352

 

 

$

1,554,904

 

 

$

1,665,667

 

Costs of goods sold

 

413,441

 

 

397,556

 

 

731,001

 

 

758,151

 

Gross profit

 

489,501

 

 

485,796

 

 

823,903

 

 

907,516

 

As a percent of net revenue

 

54.2

%

 

55.0

%

 

53.0

%

 

54.5

%

Selling, general and administrative expenses

 

352,904

 

 

317,814

 

 

652,510

 

 

610,722

 

As a percent of net revenue

 

39.1

%

 

36.0

%

 

42.0

%

 

36.7

%

Amortization of intangible assets

 

724

 

 

—

 

 

724

 

 

—

 

Acquisition-related expenses

 

11,464

 

 

—

 

 

13,509

 

 

—

 

Income from operations

 

124,409

 

 

167,982

 

 

157,160

 

 

296,794

 

As a percent of net revenue

 

13.8

%

 

19.0

%

 

10.1

%

 

17.8

%

Other income (expense), net

 

(344)

 

 

1,850

 

 

830

 

 

4,229

 

Income before income tax expense

 

124,065

 

 

169,832

 

 

157,990

 

 

301,023

 

Income tax expense

 

37,264

 

 

44,842

 

 

42,557

 

 

79,430

 

Net income

 

$

86,801

 

 

$

124,990

 

 

$

115,433

 

 

$

221,593

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.67

 

 

$

0.96

 

 

$

0.89

 

 

$

1.70

 

Diluted earnings per share

 

$

0.66

 

 

$

0.96

 

 

$

0.88

 

 

$

1.69

 

Basic weighted-average shares outstanding

 

130,245

 

 

130,285

 

 

130,248

 

 

130,489

 

Diluted weighted-average shares outstanding

 

130,799

 

 

130,783

 

 

130,802

 

 

131,060

 

lululemon athletica inc.

 

Condensed Consolidated Balance Sheets

Unaudited; Expressed in thousands

 

 

August 2, 2020

 

February 2, 2020

 

August 4, 2019

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

522,998

 

 

$

1,093,505

 

 

$

623,738

 

Inventories

 

672,773

 

 

518,513

 

 

494,294

 

Prepaid and receivable income taxes

 

125,019

 

 

85,159

 

 

112,572

 

Other current assets

 

168,965

 

 

110,761

 

 

102,409

 

Total current assets

 

1,489,755

 

 

1,807,938

 

 

1,333,013

 

Property and equipment, net

 

698,514

 

 

671,693

 

 

617,090

 

Right-of-use lease assets

 

725,805

 

 

689,664

 

 

657,044

 

Goodwill and intangible assets, net

 

471,064

 

 

24,423

 

 

24,184

 

Deferred income taxes and other non-current assets

 

108,889

 

 

87,636

 

 

63,413

 

Total assets

 

$

3,494,027

 

 

$

3,281,354

 

 

$

2,694,744

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

122,767

 

 

$

79,997

 

 

$

110,513

 

Accrued inventory liabilities

 

31,675

 

 

6,344

 

 

8,778

 

Other accrued liabilities

 

177,436

 

 

112,641

 

 

108,695

 

Accrued compensation and related expenses

 

84,102

 

 

133,688

 

 

100,735

 

Current lease liabilities

 

147,941

 

 

128,497

 

 

130,182

 

Current income taxes payable

 

75,153

 

 

26,436

 

 

5,090

 

Unredeemed gift card liability

 

106,425

 

 

120,413

 

 

79,629

 

Other current liabilities

 

17,810

 

 

12,402

 

 

8,987

 

Total current liabilities

 

763,309

 

 

620,418

 

 

552,609

 

Non-current lease liabilities

 

632,646

 

 

611,464

 

 

568,311

 

Non-current income taxes payable

 

43,150

 

 

48,226

 

 

48,226

 

Deferred income tax liability

 

46,901

 

 

43,432

 

 

14,114

 

Other non-current liabilities

 

6,919

 

 

5,596

 

 

4,105

 

Stockholders' equity

 

2,001,102

 

 

1,952,218

 

 

1,507,379

 

Total liabilities and stockholders' equity

 

$

3,494,027

 

 

$

3,281,354

 

 

$

2,694,744

 

lululemon athletica inc.

 

Condensed Consolidated Statements of Cash Flows

Unaudited; Expressed in thousands

 

 

Two Quarters Ended

 

 

August 2, 2020

 

August 4, 2019

Cash flows from operating activities

 

 

 

 

Net income

 

$

115,433

 

 

$

221,593

 

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

 

(55,371

)

 

(171,551

)

Net cash provided by operating activities

 

60,062

 

 

50,042

 

Net cash used in investing activities

 

(545,323

)

 

(131,969

)

Net cash used in financing activities

 

(82,157

)

 

(170,985

)

Effect of exchange rate changes on cash

 

(3,089

)

 

(4,670

)

Decrease in cash and cash equivalents

 

(570,507

)

 

(257,582

)

Cash and cash equivalents, beginning of period

 

1,093,505

 

 

881,320

 

Cash and cash equivalents, end of period

 

$

522,998

 

 

$

623,738

 

lululemon athletica inc.

Reconciliation of Non-GAAP Financial Measures Unaudited; Expressed in thousands, except per share amounts

Constant dollar changes in net revenue, direct to consumer net revenue, and direct to consumer excluding the online warehouse sale

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

 

 

Quarter Ended August 2, 2020

 

 

Net Revenue

 

Direct to Consumer Net Revenue

 

Direct to Consumer Net Revenue Excluding the Online Warehouse Sale

Change

 

2

%

 

155

%

 

135

%

Adjustments due to foreign exchange rate changes

 

1

 

 

2

 

 

2

 

Change in constant dollars

 

3

%

 

157

%

 

137

%

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 September 8, 2020 for further information on these adjustments.

 

 

Quarter Ended August 2, 2020

 

 

Income from Operations

 

Operating Margin

 

Income Tax Expense

 

Effective Tax Rate

 

Net Income

 

Diluted Earnings Per Share

GAAP results

 

$

124,409

 

 

13.8

%

 

$

37,264

 

 

30.0

%

 

$

86,801

 

 

$

0.66

 

Transaction and integration costs

 

7,201

 

 

0.8

 

 

 

 

 

 

7,201

 

 

0.06

 

Gain on existing investment

 

(782

)

 

(0.1

)

 

 

 

 

 

(782

)

 

(0.01

)

Acquisition-related compensation

 

5,045

 

 

0.5

 

 

 

 

 

 

5,045

 

 

0.04

 

Tax effect of the above

 

 

 

 

 

1,967

 

 

(1.1

)

 

(1,967

)

 

(0.01

)

Adjusted results (non-GAAP)

 

$

135,873

 

 

15.0

%

 

$

39,231

 

 

28.9

%

 

$

96,298

 

 

$

0.74

 

 

 

Two Quarters Ended August 2, 2020

 

 

Income from Operations

 

Operating Margin

 

Income Tax Expense

 

Effective Tax Rate

 

Net Income

 

Diluted Earnings Per Share

GAAP results

 

$

157,160

 

 

10.1

%

 

$

42,557

 

 

26.9

%

 

$

115,433

 

 

$

0.88

 

Transaction and integration costs

 

9,246

 

 

0.6

 

 

 

 

 

 

9,246

 

 

0.07

 

Gain on existing investment

 

(782

)

 

(0.1

)

 

 

 

 

 

(782

)

 

(0.01

)

Acquisition-related compensation

 

5,045

 

 

0.4

 

 

 

 

 

 

5,045

 

 

0.04

 

Tax effect of the above

 

 

 

 

 

1,967

 

 

(0.9

)

 

(1,967

)

 

(0.01

)

Adjusted results (non-GAAP)

 

$

170,669

 

 

11.0

%

 

$

44,524

 

 

26.0

%

 

$

126,975

 

 

$

0.97

 

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

3rd Quarter 2019

 

460

 

21

 

2

 

479

4th Quarter 2019

 

479

 

16

 

4

 

491

1st Quarter 2020

 

491

 

4

 

6

 

489

2nd Quarter 2020

 

489

 

17

 

—

 

506

                   

 

 

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

3rd Quarter 2019

 

1,522

 

87

 

5

 

1,604

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

__________

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.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20200908005913/en/

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