Lululemon Athletica Inc. reported earnings and sales in the second quarter came in well above Wall Street targets. Sales grew 61 percent year-over-year and 28 percent on a two-year compound annual growth rate.

Calvin McDonald, CEO, said, “Our second-quarter results demonstrate the continued momentum across the business and how we are living into our Power of Three growth plan and Impact Agenda commitments. We launched exciting new products, experienced strength across channels and geographies and announced new partnerships that will allow us to become a leader in product sustainability. I’m inspired every day by our teams around the world for their continued enthusiasm, agility, and commitment to the brand.”

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 second quarter of 2021, compared to the second quarter of 2020:

  • Net revenue increased 61 percent to $1.5 billion. Results were well above Wall Street’s consensus estimate of $1.33 billion.
  • On a constant dollar basis, net revenue increased 56 percent.
    • Company-operated stores net revenue increased 142 percent to $695.1 million;
    • DTC net revenue increased 8 percent to $597.4 million. On a constant dollar basis, DTC net revenue increased 4 percent; and
    • Net revenue increased 63 percent in North America and increased 49 percent internationally.
  • DTC net revenue represented 41.2 percent of total net revenue compared to 61.4 percent for the second quarter of 2020.
  • Gross profit increased 72 percent to $842.7 million, and gross margin increased 390 basis points to 58.1 percent.
  • Income from operations increased 134 percent to $291.0 million.
  • Adjusted income from operations increased 120 percent to $299.2 million.
  • Operating margin increased 630 basis points to 20.1 percent. Adjusted operating margin increased 560 basis points to 20.6 percent.
  • Income tax expense increased 123 percent to $83.1 million. The effective tax rate for the second quarter of 2021 was 28.5 percent compared to 30.0 percent for the second quarter of 2020. The adjusted effective tax rate was 27.9 percent for the second quarter of 2021 compared to 28.9 percent for the second quarter of 2020.
  • Diluted earnings per share were $1.59 compared to $0.66 in the second quarter of 2020. Adjusted diluted earnings per share were $1.65 compared to $0.74 in the second quarter of 2020. Results were well above Wall Street’s consensus estimate of $1.18.
  • The company repurchased 0.5 million shares of its own common stock at an average price of $338.41 per share for a total cost of $171.1 million.
  • The company opened 11 new company-operated stores during the second quarter, ending with 534 stores.

For the second quarter of 2021, compared to the second quarter of 2019:

  • Net revenue increased by $567.3 million, or 64 percent, representing a two-year compound annual growth rate of 28 percent.
  • Gross margin increased 310 basis points.
  • Operating margin increased 110 basis points. Adjusted operating margin increased 160 basis points.
  • Diluted earnings per share were $1.59 compared to $0.96 in the second quarter of 2019. Adjusted diluted earnings per share were $1.65 in the second quarter of 2021.

Meghan Frank, CFO, said “Our performance in Q2 was driven by a strong response to our product offering, improving productivity in our stores, and sustained strength in e-commerce. While we continue to navigate the COVID-19 environment, including supply chain headwinds, I’m excited with our momentum as we head into the second half of the year and pleased to be able to increase our guidance. I too would like to thank the teams across the globe for enabling our solid financial performance.”

Balance Sheet Highlights
The company ended the second quarter of 2021 with $1.2 billion in cash and cash equivalents and the capacity under its committed revolving credit facilities was $397.2 million. Inventories at the end of the second quarter of 2021 increased 17 percent to $789.8 million compared to $672.8 million at the end of the second quarter of 2020.

2021 Outlook
For the third quarter of 2021, Lululemon said it expects net revenue to be in the range of $1.400 billion to $1.430 billion. Diluted earnings per share are expected to be in the range of $1.28 to $1.33 for the quarter and adjusted diluted earnings per share are expected to be in the range of $1.33 to $1.38.

For 2021, Lululemon said it expects net revenue to be in the range of $6.190 billion to $6.260 billion. Diluted earnings per share are expected to be in the range of $7.16 to $7.26 for the year and adjusted diluted earnings per share are expected to be in the range of $7.38 to $7.48.

The guidance does not reflect potential future repurchases of the company’s shares.

Photo courtesy Lululemon