Lululemon Athletica Inc. reported that net revenue for the first quarter ended May 3 was $652.0 million, a decrease of 17 percent, compared to the first quarter of fiscal 2019. On a constant dollar basis, net revenue decreased 16 percent in the period. Direct-to-consumer (DTC) net revenue increased 68 percent, or increased 70 percent on a constant dollar basis, and represented 54.0 percent of total net revenue compared to 26.8 percent in the first quarter of fiscal 2019.
Due to the COVID-19 pandemic, all of the company’s stores in North America, Europe and certain countries in the Asia Pacific were closed for a significant portion of the quarter. Subsequent to May 3, 2020, the Company began reopening its retail locations in these markets in line with the guidance from local authorities. As of June 10, 2020, 295 of its company-operated stores were open.
Other key information:
- Gross margin was 51.3 percent, a decrease of 260 basis points compared to the first quarter of fiscal 2019;
- Income from operations was $32.8 million, a decrease of 75 percent compared to the first quarter of fiscal 2019;
- Operating margin was 5.0 percent, a decrease of 1,150 basis points compared to the first quarter of fiscal 2019;
- Income tax expense was $5.3 million compared to $34.6 million in the first quarter of fiscal 2019, and the effective tax rate was 15.6 percent compared to 26.4 percent for the first quarter of fiscal 2019; and
- Diluted earnings per share were 22 cents compared to 74 cents in the first quarter of fiscal 2019.
LULU ended the first quarter of fiscal 2020 with $823.0 million in cash and cash equivalents, and the capacity under its committed revolving credit facility was $398.2 million. The Company had $576.2 million in cash and cash equivalents at the end of the first quarter of fiscal 2019. Inventories at the end of the first quarter of fiscal 2020 increased 41 percent to $625.8 million compared to $443.0 million at the end of the first quarter of fiscal 2019. The Company ended the quarter with 489 stores.
Calvin McDonald, Chief Executive Officer commented: “I’m proud of how Lululemon has navigated these unexpected and unprecedented times. We are learning more every day about our guests — how they enjoy interacting with us online and what makes them comfortable as stores reopen.” McDonald continued, “Our strong digital business demonstrates the strength of our guest connection and the long-term opportunity to create further Omni experiences going forward.”
The outbreak of a novel strain of coronavirus (“COVID-19”) was declared a global pandemic by the World Health Organization in March 2020. The spread of COVID-19 caused public health officials to recommend precautions to mitigate the spread of the virus, especially when congregating in heavily populated areas such as malls and lifestyle centers. Government authorities, in certain markets in which the Company operates, also issued orders that required the closure of non-essential businesses and people to remain at home.
The Company took action to close retail locations and to reduce operating hours, and it continues to monitor the situation and work closely with local authorities to prioritize the safety of its employees and customers. In February 2020, the Company temporarily closed all of its retail locations in Mainland China. All of these locations have since reopened. In March 2020, it temporarily closed all of its retail locations in North America, Europe and certain countries in the Asia Pacific. Subsequent to May 3, 2020, the Company began reopening its retail locations in these markets in line with guidance from local government authorities. As of June 10, 2020, 295 of its Company-operated stores were open.
The Company’s retail locations and distribution centers are operating with precautionary measures in place such as reduced operating hours, physical distancing, enhanced cleaning and sanitation, and maximum occupancy levels.
The Company said it remains confident in the long-term growth opportunities and its Power of Three growth plan and believes that it has sufficient cash and cash equivalents and available capacity under its revolving credit facilities, to meet its liquidity needs. As of May 3, 2020, the Company had cash and cash equivalents of $823.0 million, and the capacity under its committed revolving credit facility was $398.2 million.
Fiscal 2020 Outlook
Due to the impact that COVID-19 has had worldwide and the rapid and continuous developments stemming from the pandemic, the Company is not providing detailed financial guidance for fiscal 2020 at this time.
Photos courtesy Lululemon