Lululemon Athletica Inc. reported first-quarter earnings vaulted 140 percent in the first quarter, riding a 20 percent comp gain driven by online sales and a 370 basis-point improvement in gross margin. The retailer’s full-year outlook was lifted as results easily beat internal guidance.

For the first quarter ended April 29, 2018:

  • Net revenue was $649.7 million, an increase of 25 percent compared to the first quarter of fiscal 2017. On a constant dollar basis, net revenue increased 23 percent.
  • Total comparable sales increased 20 percent, or increased 19 percent on a constant dollar basis.
  • Comparable store sales at its stores increased 8 percent, or increased 6 percent on a constant dollar basis.
  • Direct-to-consumer net revenue increased 62 percent, or increased 60 percent on a constant dollar basis.
  • Gross profit was $344.7 million, an increase of 34 percent compared to the first quarter of fiscal 2017. Gross profit increased 31 percent compared to adjusted gross profit for the first quarter of fiscal 2017.
  • Gross margin was 53.1 percent, an increase of 370 basis points compared to the first quarter of fiscal 2017. Gross margin increased 270 basis points compared to adjusted gross margin for the first quarter of fiscal 2017.
  • Income from operations was $104.3 million, an increase of 130 percent compared to the first quarter of fiscal 2017. Income from operations increased 65 percent compared to adjusted income from operations for the first quarter of fiscal 2017.
  • Operating margin was 16.1 percent, an increase of 740 basis points compared to the first quarter of fiscal 2017. Operating margin increased 400 basis points compared to adjusted operating margin for the first quarter of fiscal 2017.
  • Income tax expense was $32.1 million compared to $15.1 million in the first quarter of fiscal 2017 and the effective tax rate was 29.9 percent compared to 32.6 percent. The adjusted effective tax rate in the first quarter of fiscal 2017 was 30.8 percent.
  • Diluted earnings per share were 55 cents compared to 23 cents in the first quarter of fiscal 2017. Adjusted diluted earnings per share for the first quarter of fiscal 2017 were $0.32.

When it reported fourth-quarter earnings on March 27, Lululemon’s first-quarter guidance called for EPS in the range of 44 to 46 cents, sales in the range of range of $612 million to $617 million and a comparable sales increase in the low double digits on a constant dollar basis.

Wall Street on average was expecting earnings of 46 cents a share, sales of $616.3 million and comps to increase 12 percent.

In connection with the restructuring of its ivivva operations, the company recognized pre-tax costs totaling $17.7 million in the first quarter of fiscal 2017. The adjusted financial measures for the first quarter of fiscal 2017 exclude these charges and their related tax effects. The results for the first quarter of fiscal 2018 did not include any costs related to the restructuring of the ivivva operations.

The company ended the first quarter of fiscal 2018 with $966.6 million in cash and cash equivalents compared to $698.3 million at the end of the first quarter of fiscal 2017. Inventories at the end of the first quarter of fiscal 2018 increased 23 percent to $373.4 million compared to $303.9 million at the end of the first quarter of fiscal 2017. The company ended the quarter with 411 stores.

Glenn Murphy, executive chairman of the board, commented: “We are pleased with our continued strong results for the first quarter of 2018. This successful start to the year reaffirms our strategic priorities and I would like to thank our team for their passion and commitment to connecting with guests around the world.”

Stuart Haselden, chief operating officer, also noted: “Our first quarter results reflect the ongoing strength of our business and our continued focus on product innovation, global growth, digital acceleration and, most importantly, investing in our people. Our momentum remains strong and we are optimistic for 2018 and beyond.”

Updated Outlook

For the second quarter of fiscal 2018, we expect net revenue to be in the range of $660 million to $665 million based on a total comparable sales increase in the high single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $0.46 to $0.48 for the quarter. This guidance assumes 136.3 million diluted weighted-average shares outstanding and a 30.0 percent tax rate. The guidance does not reflect potential future repurchases of the company’s shares or any adjustments which may be recognized in connection with the U.S. tax reform.

For the full fiscal 2018, Lululemon said it now expects net revenue to be in the range of $3.040 billion to $3.075 billion based on a total comparable sales increase in the high single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $3.10 to $3.18 for the full year. This guidance assumes 136.3 million diluted weighted-average shares outstanding and a 30.0 percent tax rate. The guidance does not reflect potential future repurchases of the company’s shares or any adjustments which may be recognized in connection with the U.S. tax reform. Fiscal 2018 is a 53 week year.

Previously, guidance for the year called for sales in the range of  $2.985 billion to $3.022 billion, a comp increase in the mid-to-high single digits on a constant dollar basis and EPS in the range of $3.00 to $3.08.

Photo courtesy Lululemon