Lululemon’s Q1 Earnings Soar on 16 Percent Comp Gain

Lululemon Athletica Inc. reported revenues jumped 35 percent in the first quarter ended May 1, to $186.8 million from $138.3 million in the first quarter of fiscal 2010. Comps increased 16 percent on a constant dollar basis. Earnings catapulted 70.4 percent to $33.4 million, or 46 cents a share, from $19.6 million, or 27 cents, a year ago.

Direct to consumer revenue increased 51 percent to $13.8 million, or 7.4 percent of total company sales, in the first quarter of fiscal 2011, an increase from 6.6 percent of total company sales in the first quarter of fiscal 2010.

Gross profit for the quarter increased by 48 percent to $109.7 million, and as a percentage of net revenue gross profit increased to 58.7 percent for the quarter from 53.8 percent in the first quarter of fiscal 2010. The increase included 140 basis points from the non-recurring adjustment for the recognition of input tax credits in the first quarter of fiscal 2011.

Income from operations for the quarter increased by 59 percent to $51.7 million, and as a percentage of net revenue was 27.7 percent compared to 23.5 percent of net revenue in the first quarter of fiscal 2010.

The tax rate for the quarter was 36.3 percent compared to 40.0 percent a year ago. The decrease resulted from a revision to management’s plans for repatriation of unremitted earnings of the Canadian operating subsidiary.

Diluted earnings per share for the quarter were 46 cents a share on net income of $33.4 million, compared to diluted earnings per share of 27 cents on net income of $19.6 million in the first quarter of fiscal 2010. The increase included $0.02 in diluted earnings per share from the non-recurring adjustment for the recognition of input tax credits in the first quarter of fiscal 2011.

The company ended the first quarter of fiscal 2011 with $260.9 million in cash and cash equivalents compared to $173.6 million at the end of the first quarter of fiscal 2010. Inventory at the end of the first quarter of fiscal 2011 totaled $64.4 million compared to $50.8 million at the end of the first quarter of fiscal 2010. The company ended the quarter with 142 stores in North America and Australia.

Christine Day, Lululemon’s CEO stated: “Weve had a great start to the year and a very successful first quarter considering our lean inventory levels. We were able to generate strong sales and earnings growth while also focusing on a successful transition of our e-Commerce platform in-house. While cautious about the macro-environment, we remain confident that our business momentum will continue through fiscal 2011.”

Updated Outlook

For the second quarter of fiscal 2011, the company expects net revenue to be in the range of $200 million to $205 million based on a comparable-store sales percentage increase in the mid-to-upper teens on a constant-dollar basis. Diluted earnings per share are expected to be in the range of 42 to 44 cents a share for the quarter. This assumes 72.6 million diluted weighted-average shares outstanding and a 36 percent tax rate.

For the full fiscal 2011, Lululemon now expects net revenue to be in the range of $915 million to $930 million and diluted earnings per share are expected to be in the range of $2.10 to $2.16 cents a share for the full year. This assumes a tax rate of 36 percent and 72.8 million diluted weighted-average shares outstanding.