Lululemon Athletica, Inc. reported earnings on an adjusted basis rose 30 percent in the fourth quarter ended January 30 as comparable sales increased 22 percent. Earnings came in above updated guidance provided on January 10.

Calvin McDonald, chief executive officer, stated: “2021 was another successful year for Lululemon, which speaks to the enduring strength of our brand and our ability to deliver sustained growth across the business. We are proud that we passed the $6 billion in annual revenue milestone for the first time, and successfully achieved our Power of Three growth target ahead of schedule. This was especially impressive given the challenging macro backdrop. We are entering the new year from a position of strength, which we’ll build upon to continue delivering for our guests and shareholders in the years to come.”

The adjusted non-GAAP financial measures below exclude certain costs incurred in connection with the acquisition of Mirror, and the related tax effects.

For the fourth quarter of 2021, compared to the fourth quarter of 2020:

  • Net revenue increased 23 percent to $2.1 billion. On a constant dollar basis, net revenue increased 23 percent;
  • Net revenue increased 21 percent in North America and increased 35 percent internationally;
  • Total comparable sales increased 22 percent;
  • Comparable store sales increased 32 percent;
  • DTC net revenue increased 17 percent or increased 16 percent on a constant dollar basis;
  • DTC net revenue represented 49 percent of total net revenue compared to 52 percent for the fourth quarter of 2020;
  • Gross profit increased 22 percent to $1.2 billion, and gross margin decreased 50 basis points to 58.1 percent;
  • Income from operations increased 29 percent to $590.6 million. Adjusted income from operations increased 27 percent to $592.0 million;
  • Operating margin increased 120 basis points to 27.7 percent. The adjusted operating margin increased 90 basis points to 27.8 percent;
  • Income tax expense increased 23 percent to $156.2 million. The effective tax rate for the fourth quarter of 2021 was 26.4 percent compared to 27.8 percent for the fourth quarter of 2020. The adjusted effective tax rate was 26.4 percent for the fourth quarter of 2021 compared to 27.4 percent for the fourth quarter of 2020;
  • Diluted earnings per share were $3.36 compared to $2.52 in the fourth quarter of 2020. Adjusted diluted earnings per share for the fourth quarter of 2021 were $3.37 compared to $2.58 in the fourth quarter of 2020; and
  • The company opened 22 net new company-operated stores during the quarter, ending with 574 stores.

On January 10, the Vancouver-based chain announced that for the fourth quarter of fiscal 2021 it expects the company’s net revenue to be toward the low end of its range of $2.125 billion to $2.165 billion and that it expects diluted earnings per share and adjusted diluted earnings per share to be toward the low end of its ranges of $3.24 to $3.31 and $3.25 to $3.32, respectively. The retailer indicated it was being impacted by the consequences of the Omicron variant, including increased capacity constraints, more limited staff availability and reduced operating hours in certain locations.

For 2021 compared to 2020:

  • Net revenue increased 42 percent to $6.3 billion. On a constant dollar basis, net revenue increased 40 percent;
  • Direct to consumer net revenue increased 22 percent and increased 20 percent on a constant dollar basis;
    company-operated store net revenue increased 70 percent;
  • Net revenue increased 40 percent in North America and increased 53 percent internationally;
  • Direct to consumer net revenue represented 44 percent of total net revenue compared to 52 percent for 2020;
  • Gross profit increased 46 percent to $3.6 billion, and gross margin increased 170 basis points to 57.7 percent;
  • Income from operations increased 63 percent to $1.3 billion. Adjusted income from operations increased 62 percent to $1.4 billion;
  • Operating margin increased 270 basis points to 21.3 percent. Adjusted operating margin increased 270 basis points to 22.0 percent;
  • Income tax expense increased 56 percent to $358.5 million. The effective tax rate was 26.9 percent and 28.1 percent for 2021 and 2020, respectively. The adjusted effective tax rate was 26.2 percent for 2021 compared to 27.5 percent for 2020.
  • Diluted earnings per share were $7.49 compared to $4.50 in 2020. Adjusted diluted earnings per share were $7.79 in 2021 compared to $4.70 in 2020; and
  • The company opened 53 net new company-operated stores during the year, ending with 574 stores.

For the fourth quarter of 2021, compared to the fourth quarter of 2019:

  • Net revenue increased by $731.6 million, or 52 percent, representing a two-year compound annual growth rate of 23 percent;
  • Gross margin increased by 10 basis points;
  • Operating margin decreased by 210 basis points. Adjusted operating margin decreased by 200 basis points; and
  • Diluted earnings per share were $3.36 compared to $2.28 in the fourth quarter of 2019. Adjusted diluted earnings per share were $3.37 in the fourth quarter of 2021.

For 2021 compared to 2019:

  • Net revenue increased by $2.3 billion, or 57 percent, representing a two-year compound annual growth rate of 25 percent.
  • Gross margin increased by 180 basis points;
  • Operating margin decreased by 100 basis points. Adjusted operating margin decreased 30 basis points; and
  • Diluted earnings per share were $7.49 compared to $4.93 in 2019. Adjusted diluted earnings per share were $7.79 in 2021.

Meghan Frank, CFO, said: “Our results were driven by consistently strong performance across our products, channels, and regions. In addition, for both the fourth quarter and full year, we delivered revenue growth above our Power of Three goals, despite the continued impact of COVID-19 and global supply chain issues. We are pleased to see our momentum continue at the start of 2022 and are optimistic about our performance for the year ahead.”

Stock repurchase program
In 2021, the company repurchased 2.2 million shares of its own common stock at an average price of $369.16 per share for a total cost of $812.6 million. As of January 30, 2022, the company had $187.5 million of authorization remaining on its stock repurchase program. During the first quarter of fiscal 2022, the company completed the remaining stock repurchases under this program. On March 23, 2022, the board of directors approved a new stock repurchase program for up to $1.0 billion of the company’s common shares.

Balance sheet highlights
The company ended 2021 with $1.3 billion in cash and cash equivalents compared to $1.2 billion at the end of 2020. It had $397.0 million of capacity under its committed revolving credit facility at the end of 2021. Inventories at the end of 2021 increased by 49 percent to $966.5 million compared to $647.2 million at the end of 2020. On a number of units basis, inventory increased 33 percent.

Fiscal 2022 Outlook
For the first quarter of fiscal 2022, Lululemon expects net revenue to be in the range of $1.525 billion to $1.550 billion, representing a growth of 24 percent to 26 percent. Diluted earnings per share are expected to be in the range of $1.38 to $1.43 for the quarter.

For fiscal 2022, Lululemon expects net revenue to be in the range of $7.490 billion to $7.615 billion, representing a growth of 20 percent to 22 percent. Diluted earnings per share are expected to be in the range of $9.15 to $9.35 for the year.

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

Photo courtesy Lululemon