Lululemon Athletica Inc. provided further information regarding the items driving the earnings per share guidance revision for fiscal 2008. As announced after the market close on Monday, the company now expects earnings per share to be between 68 to 71 cents, compared to its earlier guidance for the period of 70 to 72 cents.
Lululemon had said the lowered guidance was due to “incremental hires and other strategic initiatives.” On Tuesday, the retailer elaborated that key changes from earlier guidance are as follows:
1) Management Upgrades relates to various charges including options expense, recruiting and severance charges that are incrementally related to anticipated new members of management. Total cost equals $1.3 million.
2) Assistant Manager Position relates to the incremental salary charge for the additional Assistant Manager position that is being added to the current store structure. Total cost equals $1.5 million.
3) Depreciation of New IT systems throughout our original budgeting process we estimated the cost of each component and allocated the depreciation based on the implementation dates of each of these systems. Accounting rules require that we depreciate the majority of the costs with the first phase of implementation which has begun. At a 30% declining balance depreciation rate, this pull forward of depreciation results in an additional $1.2 million in expense. Total cost is $1.2 million.
4) Margin Offset on $10 million additional expected sales at approximately 20% margin. Total gain is $2 million.
5) Tax Savings at approximately a 30% tax rate on net change to operating income. Total gain is $600,000.
In total, Lululemon said these factors lead to expected net additional operating expenses for FY2008 of $1.4 million, or two cents a share.
