Lululemon Athletica, Inc. raised its outlook as sales and earnings in the second quarter easily topped the company’s guidance. Lululemon’s earnings on an adjusted basis grew 33 percent as a comp gain of 23 percent offset gross margin pressures.

Calvin McDonald, CEO said: “The momentum in our business continued in the second quarter, fueled by the strong guest response to our product innovations, community activations and omni experience. I would like to express my gratitude to our teams around the world for their continued dedication and enthusiasm for our brand, which enabled us to generate this elevated level of performance. As we look ahead, we’re excited about our ability to successfully deliver against our Power of Three ×2 growth plan and create ongoing value for all our stakeholders.”

The adjusted non-GAAP financial measures exclude a gain on the sale of an administrative building in fiscal 2022 and certain costs incurred in connection with the acquisition of Mirror in fiscal 2021 and the related tax effects.

The fiscal year ending January 29, 2023, is referred to as “2022”, the fiscal year ended January 30, 2022, is referred to as “2021,” and the fiscal year ended February 2, 2020, is referred to as “2019.”

For the second quarter of 2022, compared to the second quarter of 2021:

  • Net revenue increased 29 percent to $1.9 billion. Net revenue increased 28 percent in North America and increased 35 percent internationally.
  • Total comparable sales increased 23 percent, or 25 percent on a constant dollar basis. Comparable store sales increased 16 percent, or 18 percent on a constant dollar basis. Direct-to-consumer net revenue increased 30 percent, or 32 percent on a constant dollar basis.
  • Direct-to-consumer net revenue represented 42 percent of total net revenue compared to 41 percent for the second quarter of 2021.
  • Gross profit increased 25 percent to $1.1 billion and gross margin decreased 160 basis points to 56.5 percent.
  • Income from operations increased 38 percent to $401.2 million. Adjusted income from operations increased 31 percent.
  • Operating margin increased 140 basis points to 21.5 percent. Adjusted operating margin increased 30 basis points.
  • Income tax expense increased 35 percent to $111.8 million. The effective tax rate for the second quarter of 2022 was 27.9 percent compared to 28.5 percent for the second quarter of 2021. The adjusted effective tax rate was 28.2 percent compared to 27.9 percent for the second quarter of 2021.
  • Diluted earnings per share were $2.26 compared to $1.59 in the second quarter of 2021. Adjusted diluted earnings per share were $2.20 compared to $1.65 in the second quarter of 2021.
  • The company repurchased 0.4 million shares of its own common stock at an average price of $298.38 per share for a total cost of $125.3 million.
  • The company opened 21 net new company-operated stores during the second quarter, ending with 600 stores.

For the second quarter of 2022, compared to the second quarter of 2019:

  • Net revenue increased by $1.0 billion, or 112 percent, representing a three-year compound annual growth rate of 28 percent.
  • Gross margin increased 150 basis points.
  • Operating margin increased 250 basis points. Adjusted operating margin increased 190 basis points.
  • Diluted earnings per share were $2.26 compared to $0.96 in the second quarter of 2019. Adjusted diluted earnings per share were $2.20 for the second quarter of 2022.

Sales of $1.9 billion were well ahead of Lululemon’s estimate in the range of $1.750 billion to $1.775 billion. EPS of $2.26 was well above guidance in the range of $1.89 to $1.94 for the quarter. Excluding the gain on the sale of an administrative office building, adjusted EPS of $2.20 easily topped guidance in the range of $1.82 to $1.87.

Meghan Frank, CFO, said: “Our teams continue to execute at a high level, which is driving our strong financial and business performance. Despite the challenges around us in the macro-environment, guest traffic in our stores and on our e-commerce sites remains robust, which speaks to the strength of our multi-dimensional operating model. I am pleased with our start to the third quarter and believe we are well positioned for the fall and holiday seasons.”

Balance Sheet highlights
The company ended the second quarter of 2022 with $498.8 million in cash and cash equivalents and the capacity under its committed revolving credit facility was $394.8 million.

Inventories at the end of the second quarter of 2022 increased 85 percent to $1.5 billion compared to $0.8 billion at the end of the second quarter of 2021. On a unit basis inventory increased 64 percent, representing a three-year compound annual growth rate of 38 percent, which is inclusive of two-percentage points for in-transit inventories. The company believes its inventories are well positioned to support its expected revenue growth in the third quarter.

2022 Outlook
For the third quarter of 2022, the company expects net revenue to be in the range of $1.780 billion to $1.805 billion, representing a three-year compound annual growth rate of approximately 25 percent. Diluted earnings per share are expected to be in the range of $1.90 to $1.95 for the quarter.

For 2022, the company expects net revenue to be in the range of $7.865 billion to $7.940 billion, representing a three-year compound annual growth rate of approximately 26 percent. Diluted earnings per share are expected to be in the range of $9.82 to $9.97 for the year and, excluding the gain on the sale of an administrative office building, adjusted diluted earnings per share are expected to be in the range of $9.75 to $9.90.

Previously, sales were expected in the range of $7.610 billion to $7.710 billion, reported EPS in the range of $9.42 to $9.57, and adjusted EPS in the range of $9.35 to $9.50.

The guidance does not reflect potential future repurchases of the company’s shares.

Power of Three x2
The company’s Power of Three x2 growth plan calls for a doubling of the business from 2021 net revenue of $6.25 billion to $12.5 billion by 2026. The key pillars of the plan are product innovation, guest experience, market expansion, and growth strategy including a plan to double men’s, double direct-to-consumer and quadruple international net revenue relative to 2021.

Photo courtesy Lululemon