Lululemon Athletica Inc. reported earnings and same-stores sales topped guidance in the third quarter, prompting the retailer to lift its guidance for the year. The revenue gains were led by a 26 percent hike in online sales.

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 $22.2 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 $619 million, an increase of 14 percent compared to the third quarter of fiscal 2016. On a constant dollar basis, net revenue increased 12 percent.
  • Total comparable sales increased 8 percent, or increased 7 percent on a constant dollar basis.
  • Comparable store sales increased 2 percent, or increased 1 percent on a constant dollar basis.
  • Direct to consumer net revenue increased 26 percent, or increased 25 percent on a constant dollar basis.
  • Gross profit was $322 million, an increase of 16 percent compared to the third quarter of fiscal 2016. Adjusted gross profit was $323.1 million, an increase of 16 percent.
  • Gross margin was 52 percent, an increase of 90 basis points compared to the third quarter of fiscal 2016. Adjusted gross margin was 52.2 percent, an increase of 110 basis points.
  • Income from operations was $85.6 million, a decrease of 8 percent compared to the third quarter of fiscal 2016. Adjusted income from operations increased $14.8 million, or 16 percent, to $107.8 million.
  • Operating margin was 13.8 percent, a decrease of 330 basis points compared to the third quarter of fiscal 2016. Adjusted operating margin was 17.4 percent, an increase of 30 basis points.
  • Income tax expense was $27.7 million compared to $25.3 million in the third quarter of fiscal 2016 and the effective tax rate was 32 percent compared to 27 percent. The adjusted effective tax rate was 30.8 percent compared to 31.3 percent in the third quarter of fiscal 2016.
  • Diluted earnings per share were 43 cents compared to 50 cents in the third quarter of fiscal 2016. Adjusted diluted earnings per share were 56 cents compared to 47 cents for the third quarter of fiscal 2016.
  • The company repurchased 0.1 million shares of its own common stock at an average cost of $60.27 per share, completing the previous $100 million stock repurchase program which commenced in December 2016.
  • The company ended the third quarter of fiscal 2017 with $650.1 million in cash and cash equivalents compared to $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 percent to $396.9 million compared to $364.5 million at the end of the third quarter of fiscal 2016. The company ended the quarter with 388 stores.

When it reported second-quarter results, Lululemon said it expected net revenue in the third quarter to be in the range of $605 million to $615 million based on a total comparable sales increase in the mid single digits on a constant dollar basis. Diluted earnings per share was expected to be in the range of 33 to 35 cents for the quarter. Excluding the impact of the Ivivva restructuring, adjusted diluted earnings per share was expected to be in the range of 50 to 52 cents for the quarter.

The company also announced that its board of directors has approved a new stock repurchase program for up to $200 million of its common shares in the open market at prevailing market prices.

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 $4 billion in revenue in 2020.”

Updated Outlook

In connection with the restructuring of the Ivivva operations, the company expects to recognize total pre-tax costs of between $45 million and $50 million in fiscal 2017, inclusive of $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, net revenue is expected to be in the range of $870 million to $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 $1.18 to $1.21 for the quarter. Excluding the impact of the Ivivva restructuring, adjusted diluted earnings per share is projected to be in the range of $1.19 to $1.22 for the quarter. This guidance assumes 135.6 million diluted weighted-average shares outstanding and a 30.4 percent tax rate. The guidance does not reflect potential future repurchases of the company’s shares.

For the full fiscal 2017, Lululemon now expects net revenue to be in the range of $2.590 billion to $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 $2.20 to $2.23 for the full year. Excluding the impact of the Ivivva restructuring, adjusted diluted earnings per share are expected to be in the range of $2.45 to $2.48 for the year. This guidance assumes 136.2 million diluted weighted-average shares outstanding and a 30.9 percent tax rate, or 30.4 percent excluding the tax effect of the Ivivva restructuring. The guidance does not reflect potential future repurchases of the company’s shares.

Under its previous guidance, net revenue was expected to be in the range of $2.545 billion to $2.595 billion based on a total comparable sales increase in the low single digits on a constant dollar basis. Diluted earnings per share was expected to be in the range of $2.04 to $2.11 for the full year. Excluding the impact of the Ivivva restructuring, adjusted diluted earnings per share was expected to be in the range of $2.35 to $2.42 for the year.

Photo courtesy Lululemon