Lululemon Athletica, Inc. again raised its outlook for sales and earnings for the year after reporting third-quarter results that topped guidance. Comparable sales in the quarter increased by 22 percent, or 25 percent on a constant dollar basis.
Sales of $1.9 billion exceeded guidance in the range of $1.780 billion to $1.805 billion. EPS of $2.00 topped guidance in the range of $1.90 to $1.95.
Calvin McDonald, CEO, said, “In the third quarter, we continued to deliver strong and balanced results across the business, demonstrating the significant potential for our brand. Our ongoing momentum is a testament to our innovative products, deep community relationships, and the hard work and dedication of our talented teams around the world. We are pleased with our early holiday season performance and look forward to all that’s ahead for Lululemon as we continue to deliver on our Power of Three ×2 growth plan.”
For the third quarter of 2022, compared to the third quarter of 2021:
- Net revenue increased 28 percent to $1.9 billion or increased 31 percent on a constant dollar basis. Net revenue increased 26 percent in North America and increased 41 percent internationally.
- Total comparable sales increased 22 percent, or 25 percent on a constant dollar basis. Comparable store sales increased 14 percent, or 17 percent on a constant dollar basis. DTC net revenue increased 31 percent, or 34 percent on a constant dollar basis.
- DTC net revenue represented 41 percent of total net revenue compared to 40 percent for the third quarter of 2021.
- Gross profit increased 25 percent to $1.0 billion and gross margin decreased 130 basis points to 55.9 percent.
- Income from operations increased 37 percent to $352.4 million. Adjusted income from operations increased 25 percent.
- Operating margin increased 120 basis points to 19.0 percent. Adjusted operating margin decreased 40 basis points.
- Income tax expense increased 39 percent to $97.3 million. The effective tax rate for the third quarter of 2022 was 27.6 percent compared to 27.2 percent for the third quarter of 2021. The adjusted effective tax rate was 25.1 percent for the third quarter of 2021.
- Diluted earnings per share were $2.00 compared to $1.44 in the third quarter of 2021. Adjusted diluted earnings per share were $1.62 in the third quarter of 2021.
- The company repurchased 54.6 thousand shares of its own common stock at an average price of $311.21 per share for a total cost of $17.0 million.
- The company opened 23 net new company-operated stores during the third quarter, ending with 623 stores.
For the third quarter of 2022, compared to the third quarter of 2019:
- Net revenue increased by $940.8 million, or 103 percent, representing a three-year compound annual growth rate of 27 percent.
- Gross margin increased 80 basis points.
- Operating margin decreased 20 basis points.
- Diluted earnings per share were $2.00 compared to $0.96 in the third quarter of 2019.
Meghan Frank, CFO, said, “We are proud to have delivered another quarter of strong sales and earnings growth, despite an operating environment that remains dynamic. These results illustrate the strength and differentiation of our omni operating model and position us well to deliver ongoing value for our stakeholders. We look forward to a strong finish to our fiscal year.”
The company ended the third quarter of 2022 with $352.6 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 third quarter of 2022 increased 85 percent to $1.7 billion compared to $0.9 billion at the end of the third quarter of 2021. On a unit basis inventory increased 80 percent, representing a three-year compound annual growth rate of 38 percent, which is inclusive of three-percentage points for in-transit inventories. The company believes its inventories are well positioned to support its expected revenue growth in the fourth quarter.
For the fourth quarter of 2022, the company expects net revenue to be in the range of $2.605 billion to $2.655 billion, representing a three-year compound annual growth rate of approximately 24 percent. Diluted earnings per share are expected to be in the range of $4.20 to $4.30 for the quarter.
For 2022, the company expects net revenue to be in the range of $7.944 billion to $7.994 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 $9.94 to $10.04 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 $9.87 to $9.97.
Under its prior guidance, sales were expected in the range of $7.865 billion to $7.940 billion. EPS was projected to be in the range of $9.82 to $9.97 for the year with adjusted EPS in the range of $9.75 to $9.90.
The guidance does not reflect potential future repurchases of the company’s shares.
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, and market expansion and the growth strategy includes a plan to double men’s, double direct to consumer, and quadruple international net revenue relative to 2021.
Photo courtesy LULU