Lululemon Athletica Inc. showed a 2 percent increase in sales in the second quarter with a boost from a 155 percent jump in online revenues. Earnings were down due to acquisition-costs tied to its acquisition of Mirror and higher expenses tied to COVID-19 measures but both earnings and sales beat Wall Street targets.

As a result of COVID-19, all of the company’s stores 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. As of August 2, 2020, 492 of its 506 company-operated stores were open.

For the second quarter ended August 2, 2020:

  • Net revenue was $902.9 million, an increase of 2 percent compared to the second quarter of fiscal 2019. On a constant dollar basis, net revenue increased 3 percent.
  • Company-operated stores’ net revenue was $287.2 million, a decrease of 51 percent compared to the second quarter of fiscal 2019.
  • Direct-to-consumer net revenue was $554.3 million, an increase of 155 percent compared to the second quarter of fiscal 2019. On a constant dollar basis, direct-to-consumer net revenue increased 157 percent.
  • Direct-to-consumer net revenue represented 61.4 percent of total net revenue compared to 24.6 percent for the second quarter of fiscal 2019.
  • Gross profit was $489.5 million, an increase of 1 percent, compared to the second quarter of fiscal 2019.
  • Gross margin was 54.2 percent, a decrease of 80 basis points, compared to the second quarter of fiscal 2019.
  • Income from operations was $124.4 million, a decrease of 26 percent, compared to the second quarter of fiscal 2019.
  • Adjusted income from operations decreased by 19 percent to $135.9 million.
  • SG&A expenses grew to $352.9 million from $317.8 million and increased as a percent of sales to 39.1 percent from 36.0 percent.
  • The latest quarter included $11.5 million in acquisition-related expenses tied to its acquisition of Mirror, a home fitness start-up that sells a $1,495 wall-mounted machine for streaming workout classes. The purchase price is $500 million.
  • Operating margin was 13.8 percent, a decrease of 520 basis points, compared to the second quarter of fiscal 2019. Adjusted operating margin was 15.0 percent, a decrease of 400 basis points.
  • Income tax expense was $37.3 million compared to $44.8 million in the second quarter of fiscal 2019 and the effective tax rate was 30.0 percent compared to 26.4 percent for the second quarter of fiscal 2019. The adjusted effective tax rate was 28.9 percent for the second quarter of fiscal 2020.
  • Diluted earnings per share were 66 cents compared to 96 cents in the second quarter of fiscal 2019. Adjusted diluted earnings per share were 74 cents for the second quarter of fiscal 2020.
  • On a year-over-year basis, net earnings declined 30.6 percent to $86.8 million, or 66 cents per share, from $125.0 million, or 96 cents, a year ago. On an adjusted basis, earnings were down 23.0 percent to $96.3 million, or 74 cents.

Earnings on an adjusted basis of 74 cents topped Wall Street’s consensus target of 56 cents.  Revenues at $902.9 million exceeded’s Wall Street’s consensus target of $847.38 million.

The company ended the second quarter of fiscal 2020 with $523.0 million in cash and cash equivalents and the capacity under its committed revolving credit facilities was $697.7 million. The company had $623.7 million in cash and cash equivalents at the end of the second quarter of fiscal 2019. Inventories at the end of the second quarter of fiscal 2020 increased 36 percent to $672.8 million compared to $494.3 million at the end of the second quarter of fiscal 2019. The company ended the quarter with 506 stores.

Calvin McDonald, CEO of Lululemon, stated: “We’re pleased with our overall business results for the second quarter, as Lululemon increasingly lives into its Omni potential. As trends around the world are shifting to working and sweating from home with an increased focus on health and wellness, we believe 2020 is likely an inflection point for retail and for Lululemon.”

McDonald continued: “We are cautiously optimistic with regard to the second half of the year as we continue to navigate the uncertain environment.”

Fiscal 2020 Outlook
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