Financial News

lululemon athletica inc. Announces Third Quarter Fiscal 2022 Results

Revenue increased 28% to $1.9 billion

Comparable sales increased 22%, or increased 25% on a constant dollar basis

Diluted EPS of $2.00

lululemon athletica inc. (NASDAQ:LULU) today announced financial results for the third quarter of fiscal 2022.

Calvin McDonald, Chief Executive Officer, stated: "In the third quarter, we continued to deliver strong and balanced results across the business, demonstrating the significant potential for our brand. Our ongoing momentum is a testament to our innovative products, deep community relationships, and the hard work and dedication of our talented teams around the world. We are pleased with our early holiday season performance and look forward to all that’s ahead for lululemon as we continue to deliver on our Power of Three ×2 growth plan."

The adjusted non-GAAP financial measures below exclude certain costs incurred in connection with the acquisition of MIRROR in fiscal 2021, and the related tax effects.

The fiscal year ending January 29, 2023 is referred to as "2022", the fiscal year ended January 30, 2022 is referred to as "2021", and the fiscal year ended February 2, 2020 is referred to as "2019".

For the third quarter of 2022, compared to the third quarter of 2021:

  • Net revenue increased 28% to $1.9 billion, or increased 31% on a constant dollar basis.
    • Net revenue increased 26% in North America, and increased 41% internationally.
  • Total comparable sales increased 22%, or 25% on a constant dollar basis.
    • Comparable store sales increased 14%, or 17% on a constant dollar basis.
    • Direct to consumer net revenue increased 31%, or 34% on a constant dollar basis.
  • Direct to consumer net revenue represented 41% of total net revenue compared to 40% for the third quarter of 2021.
  • Gross profit increased 25% to $1.0 billion and gross margin decreased 130 basis points to 55.9%.
  • Income from operations increased 37% to $352.4 million. Adjusted income from operations increased 25%.
  • Operating margin increased 120 basis points to 19.0%. Adjusted operating margin decreased 40 basis points.
  • Income tax expense increased 39% to $97.3 million. The effective tax rate for the third quarter of 2022 was 27.6% compared to 27.2% for the third quarter of 2021. The adjusted effective tax rate was 25.1% for the third quarter of 2021.
  • Diluted earnings per share were $2.00 compared to $1.44 in the third quarter of 2021. Adjusted diluted earnings per share were $1.62 in the third quarter of 2021.
  • The Company repurchased 54.6 thousand shares of its own common stock at an average price of $311.21 per share for a total cost of $17.0 million.
  • The Company opened 23 net new company-operated stores during the third quarter, ending with 623 stores.

For the third quarter of 2022, compared to the third quarter of 2019:

  • Net revenue increased by $940.8 million, or 103%, representing a three-year compound annual growth rate of 27%.
  • Gross margin increased 80 basis points.
  • Operating margin decreased 20 basis points.
  • Diluted earnings per share were $2.00 compared to $0.96 in the third quarter of 2019.

Meghan Frank, Chief Financial Officer, stated: "We are proud to have delivered another quarter of strong sales and earnings growth, despite an operating environment that remains dynamic. These results illustrate the strength and differentiation of our omni operating model and position us well to deliver ongoing value for our stakeholders. We look forward to a strong finish to our fiscal year."

Balance sheet highlights

The Company ended the third quarter of 2022 with $352.6 million in cash and cash equivalents and the capacity under its committed revolving credit facility was $394.8 million.

Inventories at the end of the third quarter of 2022 increased 85% to $1.7 billion compared to $0.9 billion at the end of the third quarter of 2021. On a unit basis inventory increased 80%, representing a three-year compound annual growth rate of 38%, which is inclusive of three-percentage points for in-transit inventories. The Company believes its inventories are well positioned to support its expected revenue growth in the fourth quarter.

2022 Outlook

For the fourth quarter of 2022, the Company expects net revenue to be in the range of $2.605 billion to $2.655 billion, representing a three-year compound annual growth rate of approximately 24%. Diluted earnings per share are expected to be in the range of $4.20 to $4.30 for the quarter.

For 2022, the Company expects net revenue to be in the range of $7.944 billion to $7.994 billion, representing a three-year compound annual growth rate of approximately 26%. Diluted earnings per share are expected to be in the range of $9.94 to $10.04 for the year and, excluding the gain on the sale of an administrative office building, adjusted diluted earnings per share are expected to be in the range of $9.87 to $9.97.

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 does not incorporate future unknown impacts, including macroeconomic trends and further resurgences in COVID-19. 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.

Power of Three x2

The Company's Power of Three x2 growth plan calls for a doubling of the business from 2021 net revenue of $6.25 billion to $12.5 billion by 2026. The key pillars of the plan are product innovation, guest experience, and market expansion and the growth strategy includes a plan to double men's, double direct to consumer, and quadruple international net revenue relative to 2021.

Conference Call Information

A conference call to discuss third quarter results is scheduled for today, December 8, 2022, 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: https://corporate.lululemon.com/investors/news-and-events/events-and-presentations. 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 technical athletic apparel, footwear, and accessories company for yoga, running, training, and most other activities, creating transformational products and experiences that build meaningful connections, unlocking greater possibility and wellbeing for all. Setting the bar in innovation of fabrics and functional designs, lululemon works with yogis and athletes in local communities around the world for continuous research and product feedback. For more information, visit 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 currency exchange rates for the period remained constant with the average foreign currency 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 currency 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 sale of an administrative office building and the MIRROR acquisition. The Company excludes the gain on disposal of assets and its income tax effect for the sale of an administrative office building in 2022. It excludes the transaction and integration costs related to the MIRROR acquisition and certain acquisition-related compensation costs, and the related income tax effects of these items in 2021. The acquisition-related compensation costs include accelerated expenses related to the transition of the former MIRROR Chief Executive Officer to an advisory role.

The Company believes these adjusted financial measures are useful to investors as they provide supplemental information that enable evaluation of the underlying trend in its operating performance, and enable a more consistent comparison to its historical financial information. Further, due to the finite and discrete nature of these items, it does not consider them to be normal operating expenses that are necessary to operate the business. 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; changes in consumer shopping preferences and shifts in distribution channels; the acceptability of its products to guests; its highly competitive market and increasing competition; increasing costs and decreasing selling prices; the Company's ability to achieve the synergies and benefits sought through the acquisition of MIRROR (now known as lululemon Studio); the ability of lululemon Studio to generate near and long term expected cash flows which if not achieved could result in a material impairment of goodwill or other assets; 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 expand in light of its limited operating experience and limited brand recognition in new international markets and new product categories; 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; disruptions of its supply chain; its reliance on a relatively small number of vendors to supply and manufacture a significant portion of its products; 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 Asia and South East Asia; its ability to safeguard against security breaches with respect to its technology systems; its compliance with privacy and data protection laws; any material disruption of its information systems; its ability to have technology-based systems function effectively and grow its e-commerce business globally; climate change, and related legislative and regulatory responses; increased scrutiny regarding its environmental, social, and governance, or sustainability responsibilities; an economic recession, depression, or downturn or economic uncertainty in its key markets; the current COVID-19 coronavirus pandemic and related government, private sector, and individual consumer responsive actions; 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 patents 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

 

 

 

Third Quarter

 

First Three Quarters

 

 

2022

 

2021

 

2022

 

2021

Net revenue

 

$

1,856,889

 

 

$

1,450,421

 

 

$

5,338,680

 

 

$

4,127,504

 

Costs of goods sold

 

 

818,037

 

 

 

621,028

 

 

 

2,373,959

 

 

 

1,755,111

 

Gross profit

 

 

1,038,852

 

 

 

829,393

 

 

 

2,964,721

 

 

 

2,372,393

 

As a percent of net revenue

 

 

55.9

%

 

 

57.2

%

 

 

55.5

%

 

 

57.5

%

Selling, general and administrative expenses

 

 

684,236

 

 

 

545,124

 

 

 

1,954,340

 

 

 

1,583,075

 

As a percent of net revenue

 

 

36.8

%

 

 

37.6

%

 

 

36.6

%

 

 

38.4

%

Amortization of intangible assets

 

 

2,189

 

 

 

2,195

 

 

 

6,579

 

 

 

6,585

 

Acquisition-related expenses

 

 

 

 

 

24,127

 

 

 

 

 

 

39,934

 

Gain on disposal of assets

 

 

 

 

 

 

 

 

(10,180

)

 

 

 

Income from operations

 

 

352,427

 

 

 

257,947

 

 

 

1,013,982

 

 

 

742,799

 

As a percent of net revenue

 

 

19.0

%

 

 

17.8

%

 

 

19.0

%

 

 

18.0

%

Other income (expense), net

 

 

331

 

 

 

15

 

 

 

454

 

 

 

338

 

Income before income tax expense

 

 

352,758

 

 

 

257,962

 

 

 

1,014,436

 

 

 

743,137

 

Income tax expense

 

 

97,288

 

 

 

70,174

 

 

 

279,447

 

 

 

202,319

 

Net income

 

$

255,470

 

 

$

187,788

 

 

$

734,989

 

 

$

540,818

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

2.00

 

 

$

1.45

 

 

$

5.75

 

 

$

4.16

 

Diluted earnings per share

 

$

2.00

 

 

$

1.44

 

 

$

5.74

 

 

$

4.14

 

Basic weighted-average shares outstanding

 

 

127,511

 

 

 

129,684

 

 

 

127,736

 

 

 

130,019

 

Diluted weighted-average shares outstanding

 

 

127,820

 

 

 

130,189

 

 

 

128,089

 

 

 

130,557

 

lululemon athletica inc.

Condensed Consolidated Balance Sheets

Unaudited; Expressed in thousands

 

 

 

October 30,

2022

 

January 30,

2022

 

October 31,

2021

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

352,624

 

$

1,259,871

 

$

993,591

Inventories

 

 

1,741,716

 

 

966,481

 

 

943,900

Prepaid and receivable income taxes

 

 

196,385

 

 

118,928

 

 

140,582

Other current assets

 

 

343,456

 

 

269,573

 

 

233,221

Total current assets

 

 

2,634,181

 

 

2,614,853

 

 

2,311,294

Property and equipment, net

 

 

1,122,490

 

 

927,710

 

 

876,489

Right-of-use lease assets

 

 

946,687

 

 

803,543

 

 

789,381

Goodwill and intangible assets, net

 

 

451,234

 

 

458,179

 

 

460,559

Deferred income taxes and other non-current assets

 

 

154,844

 

 

138,193

 

 

134,284

Total assets

 

$

5,309,436

 

$

4,942,478

 

$

4,572,007

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

300,870

 

$

289,728

 

$

227,067

Accrued liabilities and other

 

 

357,365

 

 

330,800

 

 

324,432

Accrued compensation and related expenses

 

 

184,122

 

 

204,921

 

 

181,863

Current lease liabilities

 

 

188,110

 

 

188,996

 

 

175,445

Current income taxes payable

 

 

80,947

 

 

133,852

 

 

43,199

Unredeemed gift card liability

 

 

171,659

 

 

208,195

 

 

137,656

Other current liabilities

 

 

39,762

 

 

48,842

 

 

28,358

Total current liabilities

 

 

1,322,835

 

 

1,405,334

 

 

1,118,020

Non-current lease liabilities

 

 

850,373

 

 

692,056

 

 

684,460

Non-current income taxes payable

 

 

28,555

 

 

38,074

 

 

38,073

Deferred income tax liability

 

 

50,884

 

 

53,352

 

 

60,374

Other non-current liabilities

 

 

17,585

 

 

13,616

 

 

12,625

Stockholders' equity

 

 

3,039,204

 

 

2,740,046

 

 

2,658,455

Total liabilities and stockholders' equity

 

$

5,309,436

 

$

4,942,478

 

$

4,572,007

lululemon athletica inc.

Condensed Consolidated Statements of Cash Flows

Unaudited; Expressed in thousands

 

 

 

First Three Quarters

 

 

2022

 

2021

Cash flows from operating activities

 

 

 

 

Net income

 

$

734,989

 

 

$

540,818

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities

 

 

(814,790

)

 

 

117,306

 

Net cash provided by (used in) operating activities

 

 

(79,801

)

 

 

658,124

 

Net cash used in investing activities

 

 

(386,862

)

 

 

(313,438

)

Net cash used in financing activities

 

 

(399,428

)

 

 

(523,197

)

Effect of foreign currency exchange rate changes on cash

 

 

(41,156

)

 

 

21,585

 

Increase (decrease) in cash and cash equivalents

 

 

(907,247

)

 

 

(156,926

)

Cash and cash equivalents, beginning of period

 

 

1,259,871

 

 

 

1,150,517

 

Cash and cash equivalents, end of period

 

$

352,624

 

 

$

993,591

 

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 for the third quarter of 2022 compared to the third quarter of 2021.

 

 

Net Revenue

 

Total

Comparable

Sales1,2

 

Comparable

Store Sales2

 

Direct to

Consumer Net

Revenue

Change

 

28

%

 

22

%

 

14

%

 

31

%

Adjustments due to foreign currency exchange rate changes

 

3

 

 

3

 

 

3

 

 

3

 

Change in constant dollars

 

31

%

 

25

%

 

17

%

 

34

%

________________

(1)

 

Total comparable sales includes comparable store sales and direct to consumer net revenue.

(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.

Adjusted financial measures

The following tables reconcile adjusted financial measures with the most directly comparable measures calculated in accordance with GAAP. The 2022 adjustments relate to the gain on sale of an administrative office building and its related tax effects. The 2021 adjustments relate to the acquisition of MIRROR, including accelerated compensation expense related to the transition of the former MIRROR Chief Executive Officer to a temporary advisory role with the Company, and its related tax effects. Please refer to Note 4. Gain on Disposal of Assets and Note 3. Acquisition-Related Expenses 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 8, 2022 for further information on these adjustments.

 

 

First Three Quarters 2022

 

 

Income from

Operations

 

Operating

Margin

 

Income Tax

Expense

 

Effective

Tax Rate

 

Net Income

 

Diluted

Earnings Per

Share

GAAP results

 

$

1,013,982

 

 

19.0

%

 

$

279,447

 

 

27.5

%

 

$

734,989

 

 

$

5.74

 

Gain on disposal of assets

 

 

(10,180

)

 

(0.2

)

 

 

 

 

 

 

(10,180

)

 

 

(0.08

)

Tax effect of the above

 

 

 

 

 

 

(1,661

)

 

0.2

 

 

 

1,661

 

 

 

0.01

 

Adjusted results (non-GAAP)

 

$

1,003,802

 

 

18.8

%

 

$

277,786

 

 

27.7

%

 

$

726,470

 

 

$

5.67

 

 

 

Third Quarter 2021

 

 

Income from

Operations

 

Operating

Margin

 

Income Tax

Expense

 

Effective

Tax Rate

 

Net Income

 

Diluted

Earnings Per

Share

GAAP results

 

$

257,947

 

17.8

%

 

$

70,174

 

27.2

%

 

$

187,788

 

 

$

1.44

Transaction and integration costs

 

 

328

 

 

 

 

 

 

 

 

328

 

 

 

Acquisition-related compensation

 

 

23,799

 

1.6

 

 

 

 

 

 

 

23,799

 

 

 

0.18

Tax effect of the above

 

 

 

 

 

 

611

 

(2.1

)

 

 

(611

)

 

 

Adjusted results (non-GAAP)

 

$

282,074

 

19.4

%

 

$

70,785

 

25.1

%

 

$

211,304

 

 

$

1.62

 

 

First Three Quarters 2021

 

 

Income from

Operations

 

Operating

Margin

 

Income Tax

Expense

 

Effective

Tax Rate

 

Net Income

 

Diluted

Earnings Per

Share

GAAP results

 

$

742,799

 

18.0

%

 

$

202,319

 

27.2

%

 

$

540,818

 

 

$

4.14

 

Transaction and integration costs

 

 

1,859

 

 

 

 

 

 

 

 

1,859

 

 

 

0.02

 

Acquisition-related compensation

 

 

38,075

 

1.0

 

 

 

 

 

 

 

38,075

 

 

 

0.29

 

Tax effect of the above

 

 

 

 

 

 

1,417

 

(1.2

)

 

 

(1,417

)

 

 

(0.01

)

Adjusted results (non-GAAP)

 

$

782,733

 

19.0

%

 

$

203,736

 

26.0

%

 

$

579,335

 

 

$

4.44

 

Expected adjusted earnings per share

 

 

Fiscal 2022

Expected diluted earnings per share range

 

$9.94 to $10.04

Gain on disposal of assets, net of tax

 

(0.07)

Expected adjusted earnings per share range (non-GAAP)

 

$9.87 to $9.97

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

4th Quarter 2021

 

552

 

23

 

1

 

574

1st Quarter 2022

 

574

 

6

 

1

 

579

2nd Quarter 2022

 

579

 

22

 

1

 

600

3rd Quarter 2022

 

600

 

25

 

2

 

623

 

 

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 2021

 

2,002

 

126

 

3

 

2,125

1st Quarter 2022

 

2,125

 

32

 

2

 

2,155

2nd Quarter 2022

 

2,155

 

105

 

2

 

2,258

3rd Quarter 2022

 

2,258

 

139

 

7

 

2,390

________________

1

Company-operated store count and square footage summary 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.

 

Contacts

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

1-415-619-2757

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