lululemon Q3 Income Soars on 36% Comps Increase

lululemon athletica inc. third quarter net revenue increased 84% to $66.2 million from $36.0 million for the third quarter of fiscal 2006. Net revenue from corporate-owned stores was $59.9 million, an increase of 106% from $29.1 million for the third quarter of fiscal 2006, with comparable-store sales increasing 36%, or 26% on a constant dollar basis.

Gross profit as a percentage of net revenue increased 210 basis points to 54.2% of net revenue from 52.1% of net revenue in the third quarter of fiscal 2006. Income from operations was $11.8 million, or 17.9% of net revenue, compared to $4.7 million, or 13.1% of net revenue, in the third quarter of fiscal 2006. Diluted earnings per share were 11 cents on net income of $7.6 million, compared to diluted earnings per share of two cents on net income of $1.7 million in the third quarter of fiscal 2006.

For the nine months ended October 31, 2007, net revenue increased 75% to $169.6 million from $96.7 million in the first nine months of fiscal 2006. Net revenue from corporate-owned stores was $151.0 million, an increase of 93% from $78.1 million for the same period in fiscal 2006, with comparable-store sales increasing 30% or 24% on a constant dollar basis.

Gross profit as a percentage of net revenue increased 210 basis points to 53.0% of net revenue from 50.9% of net revenue in the first nine months of fiscal 2006. Income from operations was $28.4 million, or 16.8% of net revenue, compared to $14.0 million, or 14.5% of net revenue, in the first nine months of fiscal 2006. Diluted earnings per share were 23 cents on net income of $16.2 million, compared to diluted earnings per share of 10 cents on net income of $6.8 million the first nine months of fiscal 2006.

Robert Meers, lululemon’s CEO stated: “We are very pleased to have delivered another quarter of strong sales and earnings growth. We believe that our performance during the third quarter further demonstrates that our innovative product offering, unique culture and distinct community-based marketing approach creates brand loyalty and continues to attract healthy and active-minded individuals to the lululemon brand. Based on the strong results in both our comp stores as well as our new stores, we are extremely excited about our future growth prospects. “

Updated Guidance

For fiscal 2007, lululemon plans to open 27 new stores in North America, including the 17 new stores opened in the first three quarters. The Company expects to open the remaining 10 stores in the fourth quarter of fiscal 2007 and continues to expect 30 to 35 new store openings in fiscal 2008.

Based on results in the first nine months, and continued momentum in the fourth quarter, the Company is raising its guidance for fiscal 2007 diluted EPS in the range of 40 cents to 42 cents from previous guidance of 30 cents to 33 cents. The new earnings guidance assumes comparable store sales growth in the high 20’s for the fiscal year, or in the low 20’s on a constant dollar basis. Diluted weighted average shares outstanding are expected to be approximately 70.3 million for fiscal 2007. The Company’s long-term annual financial targets include comparable store sales growth in the high-single digit range, net revenue growth of approximately 25% and diluted EPS growth in excess of 25%. Commencing in 2008, we anticipate a normalized statutory tax rate of approximately 34%.

Beginning with the current fiscal year, lululemon has changed its fiscal year from the 12 months ending on January 31st of each year to a 52/53 week fiscal year ending on the first Sunday following January 30th of each year. As a result, lululemon’s 2007 fiscal year will end of February 3, 2008 instead of January 31, 2008 and lululemon’s fourth quarter for fiscal 2007 will have three additional days. lululemon’s 2008 fiscal year will begin on February 4, 2008 and end on February 1, 2009.