lululemon athletica inc. Announces Third Quarter Fiscal 2016 Results; Board of Directors Authorizes $100 Million Stock Repurchase Program

VANCOUVER, British Columbia--()--lululemon athletica inc. (NASDAQ:LULU) today announced financial results for the third quarter ended October 30, 2016.

“Our third quarter results demonstrated strong execution across all areas of our business as we delivered continued topline momentum, outperformed in gross margin and inflected meaningfully in EPS. This success is a result of our team's ongoing effort and commitment to delivering on our long term strategies.”

For the third quarter ended October 30, 2016:

  • Net revenue increased by 13% to $544.4 million from $479.7 million in the third quarter of fiscal 2015.
  • Total comparable sales, which includes comparable store sales and direct to consumer, increased by 7%.
  • Comparable store sales increased by 4%.
  • Direct to consumer net revenue increased by 16% to $104.0 million.
  • Gross profit increased by 24% to $278.4 million, and as a percentage of net revenue gross profit was 51.1% compared to 46.9% in the third quarter of fiscal 2015.
  • Income from operations increased by 36% to $93.0 million from $68.2 million in the third quarter of fiscal 2015, and as a percentage of net revenue was 17.1% compared to 14.2% of net revenue in the third quarter of fiscal 2015.
  • Income tax expense increased to $25.3 million from $12.1 million in the third quarter of fiscal 2015, and the effective tax rate was 27.0% compared to 18.6%. Excluding certain tax and related interest adjustments, the effective tax rate was 31.3% compared to 28.8% in the third quarter of fiscal 2015.
  • Diluted earnings per share for the third quarter of fiscal 2016 were $0.50 compared to $0.38 in the third quarter of fiscal 2015. Excluding certain tax and related interest adjustments, diluted earnings per share were $0.47 for the third quarter of fiscal 2016 compared to $0.35 for the third quarter of fiscal 2015.

The Company ended the third quarter of fiscal 2016 with $480.4 million in cash and cash equivalents compared to $403.4 million at the end of the third quarter of fiscal 2015. Inventories at the end of the third quarter of fiscal 2016 increased by 2% to $364.5 million compared to $357.8 million at the end of the third quarter of fiscal 2015. The Company ended the quarter with 389 stores.

The Company also announced that its board of directors has approved a stock repurchase program for up to $100 million of its common shares in the open market at prevailing market prices. The timing and actual number of common shares to be repurchased will depend upon market conditions and other factors, in accordance with Securities and Exchange Commission requirements. The stock repurchase program is intended to create shareholder value by making opportunistic repurchases during periods of favorable market conditions. Shares may be repurchased from time to time on the open market, through block trades or otherwise. Purchases may be started or stopped at any time without prior notice depending on market conditions and other factors.

Laurent Potdevin, lululemon's CEO, stated: "Our third quarter results demonstrated strong execution across all areas of our business as we delivered continued topline momentum, outperformed in gross margin and inflected meaningfully in EPS. This success is a result of our team's ongoing effort and commitment to delivering on our long term strategies."

Mr. Potdevin continued: "As we entered the fourth quarter, we experienced mixed sales results that have since improved. I am inspired by the team's response and passion towards making this another successful holiday season, and I am confident that we will continue to deliver an unparalleled guest experience across all our channels and regions around the globe."

Updated Outlook

For the fourth quarter of fiscal 2016, we expect net revenue to be in the range of $765 million to $785 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 $0.96 to $1.01 for the quarter. This guidance assumes 137.3 million diluted weighted-average shares outstanding and a 31.2% tax rate.

For the full fiscal 2016, we now expect net revenue to be in the range of $2.320 billion to $2.340 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 $2.18 to $2.23 for the full year, or $2.11 to $2.16 normalized for the tax and related interest adjustments made during the first three quarters of fiscal 2016. This guidance assumes 137.3 million diluted weighted-average shares outstanding and a 28.2% tax rate, or 30.9% excluding the above tax and related interest adjustments.

Conference Call Information

A conference call to discuss third quarter results is scheduled for today, December 7, 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. (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, 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. 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
Ended
October 30,
2016

 

Thirteen Weeks
Ended
November 1,
2015

 

Thirty-Nine
Weeks Ended
October 30,
2016

 

Thirty-Nine
Weeks Ended
November 1,
2015

Net revenue $ 544,416 $ 479,693 $ 1,554,452 $ 1,356,247
Costs of goods sold   265,990     254,896     782,734     713,548  
Gross profit 278,426 224,797 771,718 642,699
As a percent of net revenue 51.1 % 46.9 % 49.6 % 47.4 %
Selling, general and administrative expenses 185,451 156,619 547,195 439,906
As a percent of net revenue   34.1 %   32.7 %   35.2 %   32.4 %
Income from operations 92,975 68,178 224,523 202,793
As a percent of net revenue 17.1 % 14.2 % 14.4 % 15.0 %
Other income (expense), net   628     (2,890 )   720     (1,519 )
Income before income tax expense 93,603 65,288 225,243 201,274
Income tax expense   25,318     12,135     57,997     52,643  
Net income $ 68,285   $ 53,153   $ 167,246   $ 148,631  
 
Basic earnings per share $ 0.50 $ 0.38 $ 1.22 $ 1.05
Diluted earnings per share $ 0.50 $ 0.38 $ 1.22 $ 1.05
Basic weighted-average shares outstanding 137,033 140,282 137,095 141,198
Diluted weighted-average shares outstanding 137,237 140,457 137,321 141,470
 
 

lululemon athletica inc.
Condensed Consolidated Balance Sheets
Unaudited; Expressed in thousands

 
   

October 30,
2016

 

January 31,
2016

ASSETS
Current assets
Cash and cash equivalents $ 480,386 $ 501,482
Inventories 364,514 284,009
Prepaid and receivable income taxes 123,362 91,453
Other current assets 54,648   40,095
Total current assets 1,022,910 917,039
Property and equipment, net 399,658 349,605
Goodwill and intangible assets, net 24,567 24,777
Deferred income taxes and other non-current assets 31,805   22,656
Total assets $ 1,478,940   $ 1,314,077
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 9,132 $ 10,381
Accrued inventory liabilities 32,146 25,451
Accrued compensation and related expenses 53,641 43,524
Income taxes payable 21,953 37,736
Unredeemed gift card liability 44,173 57,736
Other accrued liabilities 51,663   50,676
Total current liabilities 212,708 225,504
Deferred income tax liability 11,064 10,759
Other non-current liabilities 50,699 50,332
Stockholders' equity 1,204,469   1,027,482
Total liabilities and stockholders' equity $ 1,478,940   $ 1,314,077
 
 

lululemon athletica inc.
Condensed Consolidated Statements of Cash Flows
Unaudited; Expressed in thousands

 
   

Thirty-Nine
Weeks Ended
October 30,
2016

 

Thirty-Nine
Weeks Ended
November 1,
2015

Cash flows from operating activities
Net income $ 167,246 $ 148,631
Items not affecting cash 75,252 58,471
Changes in operating assets and liabilities (145,167 ) (181,162 )
Net cash provided by operating activities 97,331 25,940
Net cash used in investing activities (106,168 ) (108,061 )
Net cash used in financing activities (23,960 ) (167,452 )
Effect of exchange rate changes on cash 11,701   (11,460 )
Decrease in cash and cash equivalents (21,096 ) (261,033 )
Cash and cash equivalents, beginning of period 501,482   664,479  
Cash and cash equivalents, end of period $ 480,386   $ 403,446  
 
 

lululemon athletica inc.

Reconciliation of Non-GAAP Financial Measures

Unaudited

 

Constant dollar changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue

The below changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue show the net change for the third quarter of fiscal 2016 compared to the third quarter of fiscal 2015.

         

Change in Net
Revenue

Change in
Total
Comparable
Sales1,2

Change in
Comparable
Store Sales2

Change in
Direct to
Consumer Net
Revenue

Increase 13% 7% 4% 16%
Adjustments due to foreign exchange rate changes
Increase in constant dollars 13% 7% 4% 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.
 

Effective tax rate and diluted earnings per share, excluding tax and related interest adjustments

         

Thirteen Weeks
Ended
October 30,
2016

Thirteen Weeks
Ended
November 1,
2015

Thirty-Nine
Weeks Ended
October 30,
2016

Thirty-Nine
Weeks Ended
November 1,
2015

Effective tax rate 27.0 % 18.6 % 25.7 % 26.2 %
Tax and related interest adjustments1   4.3     10.2     5.0     3.3  
Effective tax rate, excluding tax and related interest adjustments 31.3 % 28.8 % 30.7 % 29.5 %
 

Thirteen Weeks
Ended
October 30,
2016

Thirteen Weeks
Ended
November 1,
2015

Thirty-Nine
Weeks Ended
October 30,
2016

Thirty-Nine
Weeks Ended
November 1,
2015

Diluted earnings per share $ 0.50 $ 0.38 $ 1.22 $ 1.05
Tax and related interest adjustments1   (0.03 )   (0.03 )   (0.07 )   (0.03 )
Diluted earnings per share, excluding tax and related interest adjustments $ 0.47 $ 0.35 $ 1.15 $ 1.02
 
__________
1   These adjustments relate to the Company's transfer pricing arrangements and the associated repatriation of 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 December 7, 2016 for an explanation as to the nature of these items.
 

Expected annual effective tax rate and diluted earnings per share, excluding tax and related interest adjustments

   

Fifty-Two
Weeks Ending
January 29,
2017

Expected effective tax rate 28.2%
Tax and related interest adjustments1 2.7
Expected effective tax rate, excluding tax and related interest adjustments 30.9%
 
   

Fifty-Two
Weeks Ending
January
29, 2017

Expected diluted earnings per share range $2.18 to $2.23
Tax and related interest adjustments1 (0.07)
Diluted earnings per share, excluding tax and related interest adjustments $2.11 to $2.16
 
__________
1   These adjustments relate to the Company's transfer pricing arrangements and the associated repatriation of 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 December 7, 2016 for an explanation as to the nature of these items.
 
 

lululemon athletica inc.
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 2015 354 10 1 363
1st Quarter 2016 363 11 1 373
2nd Quarter 2016 373 6 379
3rd Quarter 2016 379 12 2 389
 

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 2015 1,036 38 3 1,071
1st Quarter 2016 1,071 26 2 1,095
2nd Quarter 2016 1,095 22 1,117
3rd Quarter 2016 1,117 32 5 1,144
 
__________
1   Store count and square footage summary includes company-operated stores which are branded lululemon or ivivva. 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.
 

Contacts

Investors:
ICR, Inc.
Joseph Teklits/Caitlin Morahan
203-682-8200
or
Media:
ICR, Inc.
Alecia Pulman
203-682-8224

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