Canadian lululemon athletica inc. announces third quarter fiscal 2017 results

lululemon athletica inc. announced on December 6, 2017 financial results for the third quarter ended October 29, 2017.

The Company reported diluted earnings per share of CAD0.43 for the third quarter of fiscal 2017. Excluding the impact of the ivivva restructuring that was announced on June 1, 2017, the Company reported adjusted diluted earnings per share of CAD0.56.

The summary below provides both GAAP and adjusted non-GAAP financial measures. In connection with the restructuring of its ivivva operations, the Company recognized pre-tax costs totaling CAD22.2 million in the third quarter of fiscal 2017. The adjusted financial measures exclude the impact of the ivivva restructuring and the related tax effects, and also exclude certain discrete tax items which were recognized during the third quarter of fiscal 2016.

For the third quarter ended October 29, 2017:

  • Net revenue was CAD 619.0 million, an increase of 14 % compared to the third quarter of fiscal 2016. On a constant dollar basis, net revenue increased 12 %.
  • Total comparable sales increased 8 %, or increased 7 % on a constant dollar basis.

o            Comparable store sales increased 2 %, or increased 1 % on a constant dollar basis.

o             Direct to consumer net revenue increased 26 %, or increased 25 % on a constant dollar basis.

  • Gross profit was CAD 322.0 million, an increase of 16 % compared to the third quarter of fiscal 2016. Adjusted gross profit was CAD 323.1 million, an increase of 16 %.
  • Gross margin was 52.0 %, an increase of 90 basis points compared to the third quarter of fiscal 2016. Adjusted gross margin was 52.2 %, an increase of 110 basis points.
  • Income from operations was CAD 85.6 million, a decrease of 8 % compared to the third quarter of fiscal 2016. Adjusted income from operations increased CAD 14.8 million, or 16 %, to CAD 107.8 million.
  • Operating margin was 13.8 %, a decrease of 330 basis points compared to the third quarter of fiscal 2016. Adjusted operating margin was 17.4 %, an increase of 30 basis points.
  • Income tax expense was CAD 27.7 million compared to CAD 25.3 million in the third quarter of fiscal 2016 and the effective tax rate was 32.0 % compared to 27.0 %. The adjusted effective tax rate was 30.8 % compared to 31.3 % in the third quarter of fiscal 2016.
  • Diluted earnings per share were CAD 0.43 compared to CAD 0.50 in the third quarter of fiscal 2016. Adjusted diluted earnings per share were CAD 0.56 compared to CAD 0.47 for the third quarter of fiscal 2016.
  • The Company repurchased 0.1 million shares of its own common stock at an average cost of CAD 60.27 per share, completing the previous CAD 100 million stock repurchase program which commenced in December 2016.

The Company ended the third quarter of fiscal 2017 with CAD 650.1 million in cash and cash equivalents compared to CAD 480.4 million at the end of the third quarter of fiscal 2016. Inventories at the end of the third quarter of fiscal 2017 increased 9 % to CAD 396.9 million compared to CAD 364.5 million at the end of the third quarter of fiscal 2016. The Company ended the quarter with 388 stores.

The Company also announced that its board of directors has approved a new stock repurchase program for up to CAD 200 million of its common shares in the open market at prevailing market prices, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934. The timing and actual number of common shares to be repurchased will depend upon market conditions, eligibility to trade, and other factors, in accordance with Securities and Exchange Commission requirements, and the repurchase program is expected to be completed in two years. The stock repurchase program is intended to create shareholder value by making opportunistic repurchases during periods of favourable 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, CEO, lululemon, commented: “Our teams powerfully delivered robust results across both store and digital channels this quarter, driving a further acceleration in our business. The strength of our Q3 earnings supports our unique position as the global brand defining an active, mindful lifestyle.”

Potdevin added: “As we start the holiday season, I’m energized by our momentum and we are increasing guidance to reflect this performance. I’m grateful for the enthusiasm I see every day across our collective as we remain on our path to delivering CAD 4 billion in revenue in 2020.”

Updated Outlook

In connection with the restructuring of the ivivva operations, we expect to recognize total pre-tax costs of between CAD 45.0 million and CAD 50.0 million in fiscal 2017, inclusive of CAD 45.4 million recognized during the first three quarters of fiscal 2017. This primarily relates to long-lived asset impairment and lease termination costs.

For the fourth quarter of fiscal 2017, we expect net revenue to be in the range of CAD 870 million to CAD 885 million based on a total comparable sales increase in the mid-single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of CAD 1.18 to CAD 1.21 for the quarter. Excluding the impact of the ivivva restructuring, we expect adjusted diluted earnings per share to be in the range of CAD1.19 to CAD 1.22 for the quarter. This guidance assumes 135.6 million diluted weighted-average shares outstanding and a 30.4 % tax rate. The guidance does not reflect potential future repurchases of the Company’s shares.

For the full fiscal 2017, we now expect net revenue to be in the range of CAD 2.590 billion to CAD 2.605 billion based on a total comparable sales increase in the mid-single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of CAD 2.20 to CAD 2.23 for the full year. Excluding the impact of the ivivva restructuring, we expect adjusted diluted earnings per share to be in the range of CAD 2.45 to CAD 2.48 for the year. This guidance assumes 136.2 million diluted weighted-average shares outstanding and a 30.9 % tax rate, or 30.4 % excluding the tax effect of the ivivva restructuring. The guidance does not reflect potential future repurchases of the Company’s shares.

lululemon athletica inc. 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.

www.lululemon.com