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lululemon athletica inc. Announces First Quarter Fiscal 2020 Results

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

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 closed for a significant portion of the quarter. Subsequent to May 3, 2020, the Company began reopening its retail locations in these markets in line with the guidance from local authorities. As of June 10, 2020, 295 of its company-operated stores were open.

For the first quarter ended May 3, 2020:

  • Net revenue was $652.0 million, a decrease of 17% compared to the first quarter of fiscal 2019. On a constant dollar basis, net revenue decreased 16%.
  • Direct to consumer net revenue increased 68%, or increased 70% on a constant dollar basis.
  • Direct to consumer net revenue represented 54.0% of total net revenue compared to 26.8% for the first quarter of fiscal 2019.
  • Gross profit was $334.4 million, a decrease of 21% compared to the first quarter of fiscal 2019.
  • Gross margin was 51.3%, a decrease of 260 basis points compared to the first quarter of fiscal 2019.
  • Income from operations was $32.8 million, a decrease of 75% compared to the first quarter of fiscal 2019.
  • Operating margin was 5.0%, a decrease of 1,150 basis points compared to the first quarter of fiscal 2019.
  • Income tax expense was $5.3 million compared to $34.6 million in the first quarter of fiscal 2019 and the effective tax rate was 15.6% compared to 26.4% for the first quarter of fiscal 2019.
  • Diluted earnings per share were $0.22 compared to $0.74 in the first quarter of fiscal 2019.
  • The Company repurchased 0.4 million shares of its own common stock at an average cost of $172.68 per share.

The Company ended the first quarter of fiscal 2020 with $823.0 million in cash and cash equivalents and the capacity under its committed revolving credit facility was $398.2 million. The Company had $576.2 million in cash and cash equivalents at the end of the first quarter of fiscal 2019. Inventories at the end of the first quarter of fiscal 2020 increased 41% to $625.8 million compared to $443.0 million at the end of the first quarter of fiscal 2019. The Company ended the quarter with 489 stores.

Calvin McDonald, Chief Executive Officer commented: "I'm proud of how lululemon has navigated these unexpected and unprecedented times. We are learning more every day about our guests -- how they enjoy interacting with us online and what makes them comfortable as stores reopen." McDonald continued: "Our strong digital business demonstrates the strength of our guest connection and the long-term opportunity to create further Omni experiences going forward."

COVID-19 Pandemic

The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020. The spread of COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus, especially when congregating in heavily populated areas, such as malls and lifestyle centers. Government authorities in certain markets in which the Company operates have also issued orders that require the closure of non-essential businesses and people to remain at home.

The Company has taken actions to close retail locations and to reduce operating hours, and it continues to monitor the situation and work closely with local authorities to prioritize the safety of its people and guests. In February 2020, the Company temporarily closed all of it retail locations in Mainland China. All of these locations have since reopened. In March 2020, it temporarily closed all of its retail locations in North America, Europe, and certain countries in Asia Pacific. Subsequent to May 3, 2020, the Company began reopening its retail locations in these markets in line with the guidance from local authorities. As of June 10, 2020, 295 of its company-operated stores were open.

The Company's retail locations and distribution centers are operating with precautionary measures in place such as reduced operating hours, physical distancing, enhanced cleaning and sanitation, and maximum occupancy levels.

The Company remains confident in the long-term growth opportunities and its Power of Three growth plan and believes that it has sufficient cash and cash equivalents, and available capacity under its revolving credit facilities, to meet its liquidity needs. As of May 3, 2020, the Company had cash and cash equivalents of $823.0 million and the capacity under its committed revolving credit facility was $398.2 million.

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 first quarter results is scheduled for today, June 11, 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 in net revenue and direct to consumer net revenue 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 net revenue and direct to consumer net revenue because it uses these measures to understand the underlying growth rate of net revenue excluding the impact of changes in foreign exchange rates. The Company believes 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 its business.

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; 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

May 3, 2020

May 5, 2019

Net revenue

$

651,962

$

782,315

Costs of goods sold

317,560

360,595

Gross profit

334,402

421,720

As a percent of net revenue

51.3

%

53.9

%

Selling, general and administrative expenses

301,651

292,908

As a percent of net revenue

46.3

%

37.4

%

Income from operations

32,751

128,812

As a percent of net revenue

5.0

%

16.5

%

Other income (expense), net

1,174

2,379

Income before income tax expense

33,925

131,191

Income tax expense

5,293

34,588

Net income

$

28,632

$

96,603

Basic earnings per share

$

0.22

$

0.74

Diluted earnings per share

$

0.22

$

0.74

Basic weighted-average shares outstanding

130,251

130,694

Diluted weighted-average shares outstanding

130,803

131,337

 

lululemon athletica inc.

 

Condensed Consolidated Balance Sheets

Unaudited; Expressed in thousands

May 3,
2020

February 2,
2020

May 5,
2019

ASSETS

Current assets

Cash and cash equivalents

$

823,006

$

1,093,505

$

576,241

Inventories

625,849

518,513

443,006

Prepaid and receivable income taxes

89,316

85,159

82,200

Other current assets

156,374

110,761

70,137

Total current assets

1,694,545

1,807,938

1,171,584

Property and equipment, net

659,265

671,693

582,738

Right-of-use lease assets

731,883

689,664

626,974

Goodwill and intangible assets, net

24,044

24,423

24,094

Deferred income taxes and other non-current assets

92,049

87,636

57,630

Total assets

$

3,201,786

$

3,281,354

$

2,463,020

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

$

78,940

$

79,997

$

88,258

Accrued inventory liabilities

9,860

6,344

8,900

Accrued compensation and related expenses

69,455

133,688

75,286

Current lease liabilities

144,646

128,497

127,180

Current income taxes payable

28,729

26,436

9,377

Unredeemed gift card liability

105,286

120,413

85,215

Other current liabilities

194,580

125,043

108,726

Total current liabilities

631,496

620,418

502,942

Non-current lease liabilities

639,242

611,464

537,758

Non-current income taxes payable

48,226

48,226

38,090

Deferred income tax liability

40,764

43,432

13,834

Other non-current liabilities

6,271

5,596

3,676

Stockholders' equity

1,835,787

1,952,218

1,366,720

Total liabilities and stockholders' equity

$

3,201,786

$

3,281,354

$

2,463,020

 

lululemon athletica inc.

 

Condensed Consolidated Statements of Cash Flows

Unaudited; Expressed in thousands

Quarter Ended

May 3, 2020

May 5, 2019

Cash flows from operating activities

Net income

$

28,632

$

96,603

Adjustments to reconcile net income to net cash used in operating activities

(149,875

)

(159,406

)

Net cash used in operating activities

(121,243

)

(62,803

)

Net cash used in investing activities

(45,626

)

(63,908

)

Net cash used in financing activities

(90,587

)

(170,292

)

Effect of exchange rate changes on cash

(13,043

)

(8,076

)

Decrease in cash and cash equivalents

(270,499

)

(305,079

)

Cash and cash equivalents, beginning of period

1,093,505

881,320

Cash and cash equivalents, end of period

$

823,006

$

576,241

lululemon athletica inc.

Reconciliation of Non-GAAP Financial Measures
Unaudited

Constant dollar changes in net revenue and direct to consumer net revenue

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

 

Quarter Ended
May 3, 2020

Net Revenue

Direct to
Consumer Net
Revenue

Change

(17

)%

68

%

Adjustments due to foreign exchange rate changes

1

2

Change in constant dollars

(16

)%

70

%

 

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

2nd Quarter 2019

455

5

460

3rd Quarter 2019

460

21

2

479

4th Quarter 2019

479

16

4

491

1st Quarter 2020

491

4

6

489

 

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

2nd Quarter 2019

1,466

56

1,522

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

__________

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.

As of May 3, 2020, all of the Company's retail locations in North America, Europe, and certain countries in Asia Pacific were temporarily closed as a result of COVID-19.

Contacts:

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

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