Lululemon Athletica Inc. upped its revenue outlook for 2016 as first-quarter sales came in stronger than expected. Earnings came in line with its guidance but narrowly missed Wall Street’s target.

For the first quarter ended May 1, 2016:

  •     Net revenue increased by 17 percent to $495.5 million from $423.5 million during the same period a year ago, or increased by 19 percent on a constant dollar basis.
  •     Total comparable sales, which includes comparable store sales and direct to consumer, increased by 6 percent, or by 8 percent on a constant dollar basis.
  •     Comparable store sales increased by 3 percent, or by 5 percent on a constant dollar basis.
  •     Direct to consumer net revenue increased by 17 percent to $97.6 million, or by 18 percent on a constant dollar basis.
  •     Gross profit increased by 16 percent to $239.1 million, and as a percentage of net revenue gross profit was 48.3 percent compared to 48.6 percent in the first quarter of fiscal 2015.
  •     Income from operations decreased by 15 percent to $57.6 million from $68.0 million in the first quarter of fiscal 2015, and as a percentage of net revenue was 11.6 percent compared to 16.1 percent of net revenue in the first quarter of fiscal 2015. Included in selling, general and administrative expenses were net foreign exchange losses of $13.5 million, primarily due to the revaluation of U.S. dollar cash and receivables held in Canada, which were $9.1 million more than the net foreign exchange losses in the first quarter of fiscal 2015.
  •     Income tax expense was $11.8 million, which included a net income tax recovery of $5.6 million related to the company’s transfer pricing arrangements and the associated plan to repatriate foreign earnings. In addition, there was a related net interest expense of $1.2 million. The effective tax rate in the first quarter of fiscal 2016 was 20.6 percent compared to 30.3 percent in the first quarter of fiscal 2015. Excluding the above tax and related interest adjustments, the effective tax rate was 29.8 percent in the first quarter of fiscal 2016.
  •     Diluted earnings per share for the first quarter of fiscal 2016 were $0.33 compared to $0.34 in the first quarter of fiscal 2015. Excluding the above tax and related interest adjustments, diluted earnings per share were $0.30 for the first quarter of fiscal 2016.
  •     During the first quarter of fiscal 2016, the company repurchased 0.2 million shares of the company’s common stock at an average cost of $65.01 per share.

When reporting fourth-quarter results, Lululemon had predicted revenues in the quarter to come in the range of $483 million to $488 million based on a total comparable sales increase in the mid-single digits on a constant dollar basis. Earnings were expected to range between 28 and 30 cents. Wall Street was expecting 21 cents.

The company ended the first quarter of fiscal 2016 with $550.0 million in cash and cash equivalents compared to $655.9 million at the end of the first quarter of fiscal 2015. Inventories at the end of the first quarter of fiscal 2016 increased by 21 percent to $286.2 million compared to $236.5 million at the end of the first quarter of fiscal 2015. The company ended the quarter with 373 stores.

Laurent Potdevin, Lululemon’s CEO, stated: “We are pleased with our first quarter performance, delivering strong sales results and gross margin that exceeded expectations. We finished the quarter with our inventory levels rebalanced and on track to achieve our goals for the year.”

Potdevin continued: “I’m extremely proud of our teams who have relentlessly built the capabilities and infrastructure necessary to support profitable growth. By continuing to invest in our people and focus on product innovation, we are well on our way to deliver on our five year plan.”

Updated Outlook

For the second quarter of fiscal 2016, we expect net revenue to be in the range of $505 million to $515 million based on total comparable sales in the mid-single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $0.36 to $0.38 for the quarter. This guidance assumes 137.5 million diluted weighted-average shares outstanding and a 30.2 percent tax rate.

For the full fiscal 2016, we now expect net revenue to be in the range of $2.305 billion to $2.345 billion based on total comparable sales in the mid-single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $2.08 to $2.18 for the full year, or $2.05 to $2.15 normalized for the tax and related interest adjustments made during the first quarter of fiscal 2016. This guidance assumes 137.5 million diluted weighted-average shares outstanding and a 28.9 percent tax rate, which includes the above tax and related interest adjustments.

For the full fiscal 2016, we expect net revenue to be in the range of $2.285 billion to $2.335 billion based on a total comparable sales increase in the mid-single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $2.05 to $2.15 for the full year. This guidance assumes 138.0 million diluted weighted-average shares outstanding and a 30.2 percent tax rate. The guidance does not reflect potential future repurchases of the Company’s shares.