Lululemon Q3 Net Up on 4% Comp Gain

Lululemon athletica inc. said that for the thirteen weeks ended Nov. 2, 2008, net revenue increased 34% to $87.0 million from $64.9 million for the third quarter of fiscal 2007. Net revenue from corporate-owned stores was $77.6 million, an increase of 31% from $59.1 million for the third quarter of fiscal 2007, with comparable store sales increasing 4% on a constant-dollar basis compared to the third quarter of fiscal 2007.

Income from operations increased 7% to $13.1 million, or 15.0% of net revenue, compared to $12.2 million, or 18.9% of net revenue, in the third quarter of fiscal 2007. Diluted earnings per share from continuing operations were 13 cents on net income of $8.8 million, compared to diluted earnings per share of 12 cents on net income of $7.9 million in the third quarter of fiscal 2007. Diluted earnings per share in the third quarter of fiscal 2007 exclude a 1 cent loss per share associated with the discontinued operations resulting from the Company’s closure of its four stores in Japan.

For the thirty-nine weeks ended Nov. 2, 2008, net revenue increased 50% to $249.6 million compared to $165.9 million for the same period in fiscal 2007. Net revenue from corporate-owned stores increased 51% to $225.2 million compared to $148.8 million for the same period in fiscal 2007, with comparable store sales growth of 10% on a constant-dollar basis.

Income from operations increased 39% to $40.5 million, or 16.2% of net revenue, compared to $29.2 million, or 17.6% of net revenue, in the first nine months of fiscal 2007. Diluted earnings per share from continuing operations were 42 cents on net income of $29.6 million, compared to diluted earnings per share of 24 cents on net income of $16.8 million for the same period in fiscal 2007. Diluted earnings per share were 40 cents for the first thirty-nine weeks of fiscal 2008 and 23 cents for the same period in fiscal 2007, after deducting the associated loss for discontinued operations in Japan.

Christine Day, lululemon’s CEO stated, “While we are pleased that we met our earnings expectations in the third quarter, we recognize that we are operating in an increasingly difficult environment. During this current downturn we will operate our business prudently through careful inventory management, expense controls and conservative capital investments. We believe that our business model will prove resilient throughout this challenging time and we will emerge from these conditions with strong growth potential for our brand.”

Based on the trends in the macro environment and the weaker Canadian dollar, which are both negatively impacting our business results, LULU has revised its outlook for the rest of the year. For fourth quarter 2008, the company now anticipates reported net revenue to be in the range of $90 million to $95 million. This is based on a comparable store sales decline in the low double digits on a constant-dollar basis and six new store openings during the quarter. LULU now expect diluted earnings per share for the fourth quarter of 2008 to be in the range of 15 cents to 17 cents; incorporating a 34% tax rate and 70.7 million diluted weighted average shares outstanding.

For fiscal 2008, the company now expects diluted earnings per share in the range of 55 cents to 57 cents as compared to its previous range of 68 cents to 71 cents. Revised guidance for the full year includes net revenue between $340 million and $345 million and 35 planned new store openings in North America.

LULU said it continues to expect an average effective tax rate in the low 30% range for the full year and anticipate diluted weighted average shares outstanding of approximately 71 million for 2008. Fiscal 2008 earnings guidance includes a loss of 2 cents per share recorded in the second quarter resulting from the Company’s closure of its four stores that operated in Japan.