Lululemon Athletica Inc. reported net revenue increased 10 percent to $419.4 million for the third quarter ended Nov. 2, from $379.9 million in the third quarter of fiscal 2013. The retailer, which is fending off growing competition in the wake of a costly recall and boardroom turmoil, also became one of the first sporting goods retailers to lower its revenue outlook due to rising congestion at west coast ports that is causing many imports to arrive weeks late.
In constant dollar terms, a 3 percent decline in same-store sales and 27 percent increase in direct-to-consumer revenue blended to increase comparable store sales for the period by 3 percent in constant dollar terms. Direct-to-consumer revenue increased to $77.2 million, or 18.4 percent of total company revenues, in the third quarter of fiscal 2014, an increase from 16.3 percent of total company revenues in the third quarter of fiscal 2013.
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Comparable store sales (GAAP)1 |
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(5 |
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2 |
% |
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(6 |
)% |
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5 |
% |
Adjustments due to foreign exchange rate changes |
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2 |
% |
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3 |
% |
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2 |
% |
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2 |
% |
Comparable store sales in constant dollars1 |
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(3 |
)% |
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5 |
% |
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(4 |
)% |
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7 |
% |
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1 Comparable store sales reflects net revenue at
corporate-owned stores that have been open for at least 12 months.
Gross profit for the quarter increased 3 percent to $211.1 million, or 50.3 percent of net revenue, down 360 basis points from 53.9 percent in the third quarter of fiscal 2013.
Income from operations for the quarter decreased 12 percent to $81.2 million, and as a percentage of net revenue was 19.4 percent compared to 24.3 percent of net revenue in the third quarter of fiscal 2013.
The effective tax rate for the third quarter of fiscal 2014 was 27.1 percent compared to 29.5 percent a year ago.
Diluted earnings per share for the quarter were $0.42 on net income of $60.5 million, compared to diluted earnings per share of $0.45 on net income of $66.1 million in the third quarter of fiscal 2013.
During the third quarter of fiscal 2014, the company repurchased 1.8 million shares of the company’s common stock at an average cost of $40.49 per share.
“I am pleased that our third quarter results demonstrated sequential improvements as the quarter progressed, with all key facets of our business – brand, guest experience, and product – contributing to our momentum,” said Lululemon CEO Laurent Potdevin. “I am confident that our strong team, coupled with strategic investments into our core business areas, have already made a positive impact and place us on a strong trajectory for further global growth.”
Nine-month results
Net revenue for the first three quarters of fiscal 2014 increased 12 percent to $1,194.7 million from $1,070.2 million in the same period of fiscal 2013.
Total comparable sales increased 1 percent for the first three quarters on a constant dollar basis. Comparable store sales for the first three quarters decreased by 4 percent on a constant dollar basis and direct-to-consumer revenue increased 27 percent on a constant dollar basis.
Direct-to-consumer revenue increased 25 percent to $206.7 million, or 17.3 percent of total company revenues, in the first three quarters of fiscal 2014, an increase from 15.5 percent of total company revenues in the first three quarters of fiscal 2013.
Gross profit for the first three quarters of fiscal 2014 increased 8 percent to $604.1 million, and as a percentage of net revenue gross profit was 50.6 percent for the first three quarters as compared to 52.4 percent in the same period of fiscal 2013.
Income from operations for the first three quarters of fiscal 2014 decreased 8 percent to $218.8 million, and as a percentage of net revenue was 18.4 percent as compared to 22.2 percent of net revenue in the same period of fiscal 2013.
Tax expense for the first three quarters was $96.0 million, which included a non-recurring adjustment of $31.3 million related to the repatriation of foreign earnings that will be used to fund the share buyback program. The normalized tax rate before the $31.3 million non-recurring tax adjustment would have been 28.9 percent, compared to 29.7 percent a year ago. The tax rate for the first three quarters of fiscal 2014, including the non-recurring tax adjustment, was 42.8 percent.
Excluding the non-recurring tax adjustment, diluted earnings per share were $1.10 in the first three quarters of fiscal 2014. Including the non-recurring tax adjustment, diluted earnings per share for the first three quarters of fiscal 2014 were $0.88, which included a $0.22 per share impact from the non-recurring tax adjustment.
During the first three quarters of fiscal 2014, the company repurchased 3.3 million shares of the company’s common stock at an average cost of $39.94 per share.
The company ended the third quarter of fiscal 2014 with $633.6 million in cash and cash equivalents compared to $600.7 million at the end of the third quarter of fiscal 2013. Inventory at the end of the third quarter of fiscal 2014 totaled $229.9 million compared to $209.1 million at the end of the third quarter of fiscal 2013. The company ended the quarter with 289 stores.
Outlook
For the fourth quarter of fiscal 2014, we expect net revenue to be in the range of $570 million to $585 million based on a total comparable sales increase in the low single digits on a constant dollar basis. The sales outlook relative to previous guidance is expected to be impacted by approximately $15 million due to the combined impact of West Coast port delays, a lower Canadian dollar, and delayed store openings. Diluted earnings per share are expected to be in the range of $0.65 to $0.69 for the quarter. This guidance assumes 142.6 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.
For the full fiscal 2014, we now expect net revenue to be in the range of $1.765 billion to $1.780 billion based on a total comparable sales increase in the low single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $1.53 to $1.57 for the full year, or $1.74 to $1.78 normalized for the non-recurring tax adjustment incurred in the first quarter of fiscal 2014 related to the repatriation of foreign earnings that will be used to fund the share buyback program. This guidance assumes 144.3 million diluted weighted-average shares outstanding and a 37.9 percent tax rate, which includes the above tax adjustment, or 29.4 percent before the tax adjustment. The guidance does not reflect potential future repurchases of the company’s shares.
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Lululemon Athletica Inc. |
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Condensed Consolidated Statements of Operations |
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Unaudited; Expressed in thousands, except per share amounts |
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November 2, |
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2014 |
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2013 |
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2014 |
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2013 | ||||||||
Net revenue |
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$ |
419,396 |
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$ |
379,900 |
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$ |
1,194,722 |
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$ |
1,070,195 |
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Costs of goods sold |
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208,308 |
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175,294 |
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590,583 |
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508,909 |
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Gross profit |
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211,088 |
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204,606 |
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604,139 |
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561,286 |
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| As a percent of net revenue |
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50.3 | % |
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53.9 | % |
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50.6 | % |
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52.4 | % | ||||
Selling, general and administrative expenses |
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129,932 |
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112,270 |
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385,294 |
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324,075 |
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| As a percent of net revenue |
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30.9 | % |
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29.6 | % |
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32.2 | % |
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30.2 | % | ||||
Income from operations |
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81,156 |
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92,336 |
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218,845 |
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237,211 |
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| As a percent of net revenue |
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19.4 | % |
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24.3 | % |
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18.4 | % |
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22.2 | % | ||||
