lululemon athletica inc. Announces Third Quarter Fiscal 2021 Results

Posted on by vbodmer
  • Revenue increased 30 % to USD 1.5 billion
  • Diluted EPS of USD 1.44, Adjusted EPS of USD 1.62

lululemon athletica inc. (NASDAQ:LULU) announced financial results for the third quarter of fiscal 2021.

Calvin McDonald, Chief Executive Officer, stated: “Our third quarter results demonstrate the ongoing strength of lululemon and the tremendous growth potential of the business in both the near- and long-term. We are pleased with our early holiday season performance and how the lululemon brand continues to resonate in markets around the world. We are energized by the exciting opportunities ahead, and I’m proud of our teams across the globe for their passion and agility – I want to thank everyone for delivering a strong quarter.”

The fiscal year ending January 30, 2022 is referred to as “2021” and the fiscal year ended January 31, 2021 is referred to as “2020”. The adjusted non-GAAP financial measures below exclude certain costs incurred in connection with the acquisition of MIRROR, and the related tax effects.

For the third quarter of 2021, compared to the third quarter of 2020:

  • Net revenue increased 30 % to USD 1.5 billion. On a constant dollar basis, net revenue increased 28 %.
    • Net revenue increased 28% in North America, and increased 40 % internationally.
  • Total comparable sales increased 27 %, or increased 26 % on a constant dollar basis.
    • Comparable store sales increased 32 %, or increased 31 % on a constant dollar basis.
    • Direct to consumer net revenue increased 23 % to USD 586.5 million. On a constant dollar basis, direct to consumer net revenue increased 21 %.
  • Direct to consumer net revenue represented 40.4 % of total net revenue compared to 42.8 % for the third quarter of 2020.
  • Gross profit increased 32 % to USD 829.4 million and gross margin increased 110 basis points to 57.2 %.
  • Income from operations increased 26 % to USD 257.9 million. Adjusted income from operations increased 32 % to USD 282.1 million.
  • Operating margin decreased 50 basis points to 17.8 %. Adjusted operating margin increased 30 basis points to 19.4 %.
  • Income tax expense increased 16 % to USD 70.2 million. The effective tax rate for the third quarter of 2021 was 27.2 % compared to 29.7 % for the third quarter of 2020. The adjusted effective tax rate was 25.1 % for the third quarter of 2021 compared to 28.9 % for the third quarter of 2020.
  • Diluted earnings per share were USD 1.44 compared to USD 1.10 in the third quarter of 2020. Adjusted diluted earnings per share were
    USD1.62 compared to USD 1.16 in the third quarter of 2020.
  • The Company repurchased 0.6 million shares of its own common stock at an average price of USD 405.87 per share for a total cost of USD 236.4 million.
  • The Company opened 18 net new company-operated stores during the third quarter, ending with 552 stores.

The consolidated statement of operations for the third quarter of 2019 is included in the tables at the end of this release for reference. For the third quarter of 2021, compared to the third quarter of 2019:

  • Net revenue increased by USD 534.3 million, or 58 %, representing a two-year compound annual growth rate of 26 %.
  • Gross margin increased 210 basis points.
  • Operating margin decreased 140 basis points. Adjusted operating margin increased 20 basis points.
  • Diluted earnings per share were USD 1.44 compared to USD 0.96 in the third quarter of 2019. Adjusted diluted earnings per share were USD 1.62 in the third quarter of 2021.

Meghan Frank, Chief Financial Officer, stated: “Our teams continue to execute at a high level, which has enabled our strong Q3 performance and the upward revision to our guidance. We are pleased with these results given the ongoing, industry-wide supply chain issues we continue to navigate. While there are several large volume weeks ahead of us, we feel well positioned for a strong end to 2021.”

Balance sheet highlights

The Company ended the third quarter of 2021 with USD 1.0 billion in cash and cash equivalents and the capacity under its committed revolving credit facility was USD 396.9 million. Inventories at the end of the third quarter of 2021 increased 22% to $943.9 million compared to USD 771.0 million at the end of the third quarter of 2020.

2021 Outlook

For the fourth quarter of 2021, we expect net revenue to be in the range of USD 2.125 billion to USD 2.165 billion. Diluted earnings per share are expected to be in the range of USD 3.24 to USD 3.31 for the quarter and adjusted diluted earnings per share are expected to be in the range of USD 3.25 to USD 3.32.

For 2021, we expect net revenue to be in the range of USD 6.250 billion to USD 6.290 billion. Diluted earnings per share are expected to be in the range of USD 7.38 to USD 7.45 for the year and adjusted diluted earnings per share are expected to be in the range of USD 7.69 to USD 7.76.

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 from the spread of COVID-19. While most of the Company’s retail locations are currently open, the Company continues to operate with precautionary measures in place, as appropriate. Further resurgences in COVID-19, including from variants could cause additional restrictions, including temporarily closing all or some of our retail locations again, result in lower consumer demand, and cause further disruption in our 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.

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 MIRROR acquisition. We exclude transaction, integration costs, the gain on lululemon’s previous investment in MIRROR, certain acquisition-related compensation costs, and the related income tax effects of these items. The acquisition-related compensation costs include accelerated expenses related to the transition of the former MIRROR Chief Executive Officer to an advisory role. We believe these adjusted financial measures are useful to investors as they provide supplemental information that enable evaluation of the underlying trend in our operating performance, and enable a more consistent comparison to our historical financial information. Further, due to the finite and discrete nature of these costs, we do not consider them to be normal operating expenses that are necessary to operate the MIRROR business and we do not expect them to recur beyond the expiry of the related vesting periods. 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.

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