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lululemon athletica inc. Announces Second Quarter Fiscal 2022 Results

Revenue increased 29% to $1.9 billion

Comparable sales increased 23%, or increased 25% on a constant dollar basis

Diluted EPS of $2.26, Adjusted EPS of $2.20

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

Calvin McDonald, Chief Executive Officer, stated: "The momentum in our business continued in the second quarter, fueled by strong guest response to our product innovations, community activations, and omni experience. I would like to express my gratitude to our teams around the world for their continued dedication and enthusiasm for our brand, which enabled us to generate this elevated level of performance. As we look ahead, we're excited about our ability to successfully deliver against our Power of Three ×2 growth plan and create ongoing value for all our stakeholders."

The adjusted non-GAAP financial measures below exclude a gain on the sale of an administrative building in fiscal 2022 and 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 second quarter of 2022, compared to the second quarter of 2021:

  • Net revenue increased 29% to $1.9 billion.
    • Net revenue increased 28% in North America, and increased 35% internationally.
  • Total comparable sales increased 23%, or 25% on a constant dollar basis.
    • Comparable store sales increased 16%, or 18% on a constant dollar basis.
    • Direct to consumer net revenue increased 30%, or 32% on a constant dollar basis.
  • Direct to consumer net revenue represented 42% of total net revenue compared to 41% for the second quarter of 2021.
  • Gross profit increased 25% to $1.1 billion and gross margin decreased 160 basis points to 56.5%.
  • Income from operations increased 38% to $401.2 million. Adjusted income from operations increased 31%.
  • Operating margin increased 140 basis points to 21.5%. Adjusted operating margin increased 30 basis points.
  • Income tax expense increased 35% to $111.8 million. The effective tax rate for the second quarter of 2022 was 27.9% compared to 28.5% for the second quarter of 2021. The adjusted effective tax rate was 28.2% compared to 27.9% for the second quarter of 2021.
  • Diluted earnings per share were $2.26 compared to $1.59 in the second quarter of 2021. Adjusted diluted earnings per share were $2.20 compared to $1.65 in the second quarter of 2021.
  • The Company repurchased 0.4 million shares of its own common stock at an average price of $298.38 per share for a total cost of $125.3 million.
  • The Company opened 21 net new company-operated stores during the second quarter, ending with 600 stores.

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

  • Net revenue increased by $1.0 billion, or 112%, representing a three-year compound annual growth rate of 28%.
  • Gross margin increased 150 basis points.
  • Operating margin increased 250 basis points. Adjusted operating margin increased 190 basis points.
  • Diluted earnings per share were $2.26 compared to $0.96 in the second quarter of 2019. Adjusted diluted earnings per share were $2.20 for the second quarter of 2022.

Meghan Frank, Chief Financial Officer, stated: "Our teams continue to execute at a high level, which is driving our strong financial and business performance. Despite the challenges around us in the macro-environment, guest traffic in our stores and on our e-commerce sites remains robust, which speaks to the strength of our multi-dimensional operating model. I am pleased with our start to the third quarter and believe we are well positioned for the fall and holiday seasons."

Balance sheet highlights

The Company ended the second quarter of 2022 with $498.8 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 second quarter of 2022 increased 85% to $1.5 billion compared to $0.8 billion at the end of the second quarter of 2021. On a unit basis inventory increased 64%, representing a three-year compound annual growth rate of 38%, which is inclusive of two-percentage points for in-transit inventories. The Company believes its inventories are well positioned to support its expected revenue growth in the third quarter.

2022 Outlook

For the third quarter of 2022, the Company expects net revenue to be in the range of $1.780 billion to $1.805 billion, representing a three-year compound annual growth rate of approximately 25%. Diluted earnings per share are expected to be in the range of $1.90 to $1.95 for the quarter.

For 2022, the Company expects net revenue to be in the range of $7.865 billion to $7.940 billion, representing a three-year compound annual growth rate of approximately 26%. Diluted earnings per share are expected to be in the range of $9.82 to $9.97 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 $9.75 to $9.90.

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 from the spread of COVID-19. While most of the Company's retail locations are currently open; further resurgences in COVID-19, including from variants, could cause additional restrictions, including temporarily closing all or some of its retail locations again, result in lower consumer demand, and cause further disruption in its supply chain. 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

Our 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 second quarter results is scheduled for today, September 1, 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 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; the current COVID-19 coronavirus pandemic and related government, private sector, and individual consumer responsive actions; its highly competitive market and increasing competition; increasing costs and decreasing selling prices; its ability to anticipate consumer preferences and successfully develop and introduce new, innovative and updated products; the acceptability of its products to guests; its ability to accurately forecast guest demand for its products; changes in consumer shopping preferences and shifts in distribution channels; 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 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; 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; 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

 

 

 

Second Quarter

 

First Two Quarters

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Net revenue

 

$

1,868,328

 

 

$

1,450,618

 

 

$

3,481,791

 

 

$

2,677,083

 

Costs of goods sold

 

 

812,852

 

 

 

607,932

 

 

 

1,555,922

 

 

 

1,134,083

 

Gross profit

 

 

1,055,476

 

 

 

842,686

 

 

 

1,925,869

 

 

 

1,543,000

 

As a percent of net revenue

 

 

56.5

%

 

 

58.1

%

 

 

55.3

%

 

 

57.6

%

Selling, general and administrative expenses

 

 

662,253

 

 

 

541,317

 

 

 

1,270,104

 

 

 

1,037,951

 

As a percent of net revenue

 

 

35.4

%

 

 

37.3

%

 

 

36.5

%

 

 

38.8

%

Amortization of intangible assets

 

 

2,195

 

 

 

2,195

 

 

 

4,390

 

 

 

4,390

 

Acquisition-related expenses

 

 

 

 

 

8,143

 

 

 

 

 

 

15,807

 

Gain on disposal of assets

 

 

(10,180

)

 

 

 

 

 

(10,180

)

 

 

 

Income from operations

 

 

401,208

 

 

 

291,031

 

 

 

661,555

 

 

 

484,852

 

As a percent of net revenue

 

 

21.5

%

 

 

20.1

%

 

 

19.0

%

 

 

18.1

%

Other income (expense), net

 

 

145

 

 

 

96

 

 

 

123

 

 

 

323

 

Income before income tax expense

 

 

401,353

 

 

 

291,127

 

 

 

661,678

 

 

 

485,175

 

Income tax expense

 

 

111,832

 

 

 

83,053

 

 

 

182,159

 

 

 

132,145

 

Net income

 

$

289,521

 

 

$

208,074

 

 

$

479,519

 

 

$

353,030

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

2.27

 

 

$

1.60

 

 

$

3.75

 

 

$

2.71

 

Diluted earnings per share

 

$

2.26

 

 

$

1.59

 

 

$

3.74

 

 

$

2.70

 

Basic weighted-average shares outstanding

 

 

127,619

 

 

 

130,007

 

 

 

127,848

 

 

 

130,187

 

Diluted weighted-average shares outstanding

 

 

127,906

 

 

 

130,490

 

 

 

128,224

 

 

 

130,742

 

 

lululemon athletica inc.

Condensed Consolidated Balance Sheets

Unaudited; Expressed in thousands

 

 

 

July 31,

2022

 

January 30,

2022

 

August 1,

2021

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

498,831

 

$

1,259,871

 

$

1,170,041

Inventories

 

 

1,462,076

 

 

966,481

 

 

789,836

Prepaid and receivable income taxes

 

 

166,438

 

 

118,928

 

 

117,807

Other current assets

 

 

259,749

 

 

269,573

 

 

197,623

Total current assets

 

 

2,387,094

 

 

2,614,853

 

 

2,275,307

Property and equipment, net

 

 

1,059,859

 

 

927,710

 

 

806,387

Right-of-use lease assets

 

 

867,901

 

 

803,543

 

 

729,621

Goodwill and intangible assets, net

 

 

453,776

 

 

458,179

 

 

462,714

Deferred income taxes and other non-current assets

 

 

152,081

 

 

138,193

 

 

131,069

Total assets

 

$

4,920,711

 

$

4,942,478

 

$

4,405,098

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

259,927

 

$

289,728

 

$

203,546

Accrued liabilities and other

 

 

345,105

 

 

330,800

 

 

302,340

Accrued compensation and related expenses

 

 

153,381

 

 

204,921

 

 

150,331

Current lease liabilities

 

 

196,259

 

 

188,996

 

 

150,087

Current income taxes payable

 

 

50,815

 

 

133,852

 

 

13,743

Unredeemed gift card liability

 

 

172,666

 

 

208,195

 

 

137,021

Other current liabilities

 

 

29,057

 

 

48,842

 

 

24,286

Total current liabilities

 

 

1,207,210

 

 

1,405,334

 

 

981,354

Non-current lease liabilities

 

 

757,865

 

 

692,056

 

 

644,734

Non-current income taxes payable

 

 

28,555

 

 

38,074

 

 

38,073

Deferred income tax liability

 

 

53,271

 

 

53,352

 

 

60,010

Other non-current liabilities

 

 

16,012

 

 

13,616

 

 

9,761

Stockholders' equity

 

 

2,857,798

 

 

2,740,046

 

 

2,671,166

Total liabilities and stockholders' equity

 

$

4,920,711

 

$

4,942,478

 

$

4,405,098

 

lululemon athletica inc.

Condensed Consolidated Statements of Cash Flows

U
naudited; Expressed in thousands

 

 

 

First Two Quarters

 

 

 

2022

 

 

 

2021

 

Cash flows from operating activities

 

 

 

 

Net income

 

$

479,519

 

 

$

353,030

 

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

 

 

(625,137

)

 

 

146,742

 

Net cash provided by (used in) operating activities

 

 

(145,618

)

 

 

499,772

 

Net cash used in investing activities

 

 

(224,944

)

 

 

(201,493

)

Net cash used in financing activities

 

 

(384,576

)

 

 

(290,767

)

Effect of foreign currency exchange rate changes on cash

 

 

(5,902

)

 

 

12,012

 

Increase (decrease) in cash and cash equivalents

 

 

(761,040

)

 

 

19,524

 

Cash and cash equivalents, beginning of period

 

 

1,259,871

 

 

 

1,150,517

 

Cash and cash equivalents, end of period

 

$

498,831

 

 

$

1,170,041

 

 

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 second quarter of 2022 compared to the second quarter of 2021.

 

 

Net

Revenue

 

Total

Comparable

Sales1,2

 

Comparable

Store Sales2

 

Direct to

Consumer Net

Revenue

Change

 

29

%

 

23

%

 

16

%

 

30

%

Adjustments due to foreign currency exchange rate changes

 

2

 

 

2

 

 

2

 

 

2

 

Change in constant dollars

 

31

%

 

25

%

 

18

%

 

32

%

__________

(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 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 September 1, 2022 for further information on these adjustments.

 

 

Second Quarter 2022

 

 

Income from

Operations

 

Operating

Margin

 

Income Tax

Expense

 

Effective Tax

Rate

 

Net Income

 

Diluted

Earnings Per

Share

GAAP results

 

$

401,208

 

 

21.5

%

 

$

111,832

 

 

27.9

%

 

$

289,521

 

 

$

2.26

 

Gain on disposal of assets

 

 

(10,180

)

 

(0.6

)

 

 

 

 

 

 

(10,180

)

 

 

(0.07

)

Tax effect of the above

 

 

 

 

 

 

(1,661

)

 

0.3

 

 

 

1,661

 

 

 

0.01

 

Adjusted results (non-GAAP)

 

$

391,028

 

 

20.9

%

 

$

110,171

 

 

28.2

%

 

$

281,002

 

 

$

2.20

 

 
 

 

 

First Two Quarters 2022

 

 

Income from

Operations

 

Operating

Margin

 

Income Tax

Expense

 

Effective Tax

Rate

 

Net Income

 

Diluted

Earnings Per

Share

GAAP results

 

$

661,555

 

 

19.0

%

 

$

182,159

 

 

27.5

%

 

$

479,519

 

 

$

3.74

 

Gain on disposal of assets

 

 

(10,180

)

 

(0.3

)

 

 

 

 

 

 

(10,180

)

 

 

(0.08

)

Tax effect of the above

 

 

 

 

 

 

(1,661

)

 

0.2

 

 

 

1,661

 

 

 

0.01

 

Adjusted results (non-GAAP)

 

$

651,375

 

 

18.7

%

 

$

180,498

 

 

27.7

%

 

$

471,000

 

 

$

3.67

 

 
 

 

 

Second Quarter 2021

 

 

Income from

Operations

 

Operating

Margin

 

Income Tax

Expense

 

Effective Tax

Rate

 

Net Income

 

Diluted

Earnings Per

Share

GAAP results

 

$

291,031

 

20.1

%

 

$

83,053

 

28.5

%

 

$

208,074

 

 

$

1.59

Transaction and integration costs

 

 

1,035

 

0.1

 

 

 

 

 

 

 

1,035

 

 

 

0.01

Acquisition-related compensation

 

 

7,108

 

0.4

 

 

 

 

 

 

 

7,108

 

 

 

0.05

Tax effect of the above

 

 

 

 

 

 

434

 

(0.6

)

 

 

(434

)

 

 

Adjusted results (non-GAAP)

 

$

299,174

 

20.6

%

 

$

83,487

 

27.9

%

 

$

215,783

 

 

$

1.65

 
 

 

 

First Two Quarters 2021

 

 

Income from

Operations

 

Operating

Margin

 

Income Tax

Expense

 

Effective Tax

Rate

 

Net Income

 

Diluted

Earnings Per

Share

GAAP results

 

$

484,852

 

18.1

%

 

$

132,145

 

27.2

%

 

$

353,030

 

 

$

2.70

 

Transaction and integration costs

 

 

1,531

 

0.1

 

 

 

 

 

 

 

1,531

 

 

 

0.01

 

Acquisition-related compensation

 

 

14,276

 

0.5

 

 

 

 

 

 

 

14,276

 

 

 

0.11

 

Tax effect of the above

 

 

 

 

 

 

806

 

(0.7

)

 

 

(806

)

 

 

(0.01

)

Adjusted results (non-GAAP)

 

$

500,659

 

18.7

%

 

$

132,951

 

26.5

%

 

$

368,031

 

 

$

2.81

 

 
 

Expected adjusted earnings per share

 

 

Fiscal 2022

Expected diluted earnings per share range

 

$9.82 to $9.97

Gain on disposal of assets, net of tax

 

(0.07)

Expected adjusted earnings per share range (non-GAAP)

 

$9.75 to $9.90

 

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 2021

 

534

 

19

 

1

 

552

4th Quarter 2021

 

552

 

23

 

1

 

574

1st Quarter 2022

 

574

 

6

 

1

 

579

2nd Quarter 2022

 

579

 

22

 

1

 

600

 
 

 

 

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 2021

 

1,905

 

99

 

2

 

2,002

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

__________

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

Investor Contact:

lululemon athletica inc.

Howard Tubin

1-604-732-6124

or

ICR, Inc.

Joseph Teklits/Caitlin Churchill

1-203-682-8200



Media Contact:

lululemon athletica inc.

Madi Wallace

1-604-732-6124

or

Brunswick Group

Eleanor French

1-415-619-2757

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