Lululemon Athletica Inc. reported earnings rose 20.1 percent in the third quarter, excluding costs tied to its acquisition of Mirror, as same-store sales climbed 19 percent. Online sales increased by 94 percent. Both sales and earnings topped Wall Street’s targets.

Calvin McDonald, CEO, stated: “Our third-quarter results demonstrate the strength of Lululemon across channels and markets both in North America and around the world. Our product innovations, investments in the e-commerce business and strategic acquisition of Mirror position us well to serve our guests as their needs evolve across both physical and digital experiences.”

For the third quarter of fiscal 2020, compared to the third quarter of fiscal 2019:

  • Net revenue increased 22 percent to $1.1 billion. Wall Street’s consensus estimate had been $1.02 billion. On a constant dollar basis, net revenue increased 21 percent;
  • Net revenue increased 19 percent in North America and increased 45 percent internationally;
  • Total comparable sales increased 19 percent or increased 18 percent on a constant dollar basis;
  • DTC net revenue increased 94 percent or increased 93 percent on a constant dollar basis;
  • Comparable store productivity was 83 percent, or 82 percent on a constant dollar basis, representing a comparable store sales decrease of 17 percent, or a decrease of 18 percent on a constant dollar basis;
  • DTC net revenue represented 42.8 percent of total net revenue compared to 26.9 percent for the third quarter of fiscal 2019;
  • Gross profit increased 24 percent to $627.4 million and gross margin increased 100 basis points to 56.1 percent;
  • Income from operations increased 17 percent to $204.9 million. Adjusted income from operations increased 21 percent to $213.5 million;
  • Operating margin decreased 90 basis points to 18.3 percent. Adjusted operating margin decreased 10 basis points to 19.1 percent;
  • Income tax expense increased 17 percent to $60.7 million. The effective tax rate for the third quarter of fiscal 2020 was 29.7 percent compared to 29.1 percent for the third quarter of fiscal 2019. The adjusted effective tax rate was 28.9 percent for the third quarter of fiscal 2020;
  • Earnings rose 14.0 percent to $143.6 million, or $1.10 compared to $126.0 million, or 96 cents, in the third quarter of fiscal 2019. Adjusted to exclude costs related to its acquisition of Mirror, earnings were $151.3 million, or $1.16, representing a gain of 20.1 percent year-over-year. Wall Street’s consensus estimate had been 88 cents; and
  • The company opened nine net new company-operated stores during the quarter, ending with 515 stores.

The adjusted financial measures exclude certain costs incurred in connection with the acquisition of Mirror and the related tax effects.

Meghan Frank, CFO, stated: “Our performance this quarter was driven by strong omni momentum, with notable strength in conversion and increased traffic to our e-commerce sites.” Frank continued, “We have planned the fourth quarter based on multiple performance scenarios and believe we are well-positioned for the holiday season.”

Balance Sheet Highlights
The company ended the third quarter of fiscal 2020 with $481.6 million in cash and cash equivalents and the capacity under its committed revolving credit facilities was $697.3 million. Inventories at the end of the third quarter of fiscal 2020 increased 23 percent to $771.0 million compared to $627.1 million at the end of the third quarter of fiscal 2019.

Share Repurchase and Cancellation Of 364-Day Credit Facility
The company announced that on December 1, 2020, the board of directors approved an increase in its share repurchase authorization from $263.6 million to $500.0 million. The timing, pricing and the actual number of common shares to be repurchased will depend on prevailing market conditions, applicable legal requirements and other factors. The repurchase plan has no time limit.

The company also announced that on December 4, 2020 it had given notice to terminate its 364-day unsecured revolving credit facility. The $300.0 million facility was due to mature on June 28, 2021 and will be terminated without penalty on December 11, 2020. The company continues to maintain its unsecured five-year revolving credit facility of $400.0 million which matures on June 6, 2023.

COVID-19 and Fiscal 2020 Outlook
As a result of the COVID-19, all of the company’s retail locations in North America, Europe and certain countries in the Asia Pacific were temporarily closed during the first quarter of fiscal 2020. The company began reopening its retail locations in these markets during the second quarter of fiscal 2020, and almost all locations were open during the third quarter of fiscal 2020. Subsequent to November 1, 2020, while almost all of the company’s retail locations have remained open, it has experienced some temporary closures and is currently operating with tighter capacity restrictions in certain markets.

Due to the impact that COVID-19 is having across the globe, and the rapid and continuous developments, the company is not providing detailed financial guidance for fiscal 2020 at this time.

Photo courtesy Lululemon