Lululemon Athletica Inc. reported third-quarter earnings rose 28.5 percent with a boost from higher gross margins and a 7 percent comp gain. Sales and earnings both topped guidance.

For the third quarter ended October 30, 2016:

• Net revenue increased by 13 percent to $544.4 million from $479.7 million in the third quarter of fiscal 2015.
• Total comparable sales, which includes comparable store sales and direct to consumer, increased by 7 percent.
• Comparable-store sales increased by 4 percent.
• Direct-to-consumer net revenue increased by 16 percent to $104 million.
• Gross profit increased by 24 percent to $278.4 million, and as a percentage of net revenue gross profit was 51.1 percent compared to 46.9 percent in the third quarter of fiscal 2015.
• Income from operations increased by 36 percent to $93 million from $68.2 million in the third quarter of fiscal 2015, and as a percentage of net revenue was 17.1 percent compared to 14.2 percent of net revenue in the third quarter of fiscal 2015.
• Income tax expense increased to $25.3 million from $12.1 million in the third quarter of fiscal 2015, and the effective tax rate was 27 percent compared to 18.6 percent. Excluding certain tax and related interest adjustments, the effective tax rate was 31.3 percent compared to 28.8 percent in the third quarter of fiscal 2015.
• Diluted earnings per share for the third quarter of fiscal 2016 were 50 cents a share compared to 38 cents in the third quarter of fiscal 2015. Excluding certain tax and related interest adjustments, diluted earnings per share were 47 cents for the third quarter of fiscal 2016 compared to 35 cents for the third quarter of fiscal 2015.

Under its previous guidance, revenues were expected for the quarter in the range of $535 million to $545 million based on total comparable sales in the mid single digits on a constant dollar basis. EPS was expected to arrive in the range of 42 cents to 44 cents for the quarter.

The company ended the third quarter of fiscal 2016 with $480.4 million in cash and cash equivalents compared to $403.4 million at the end of the third quarter of fiscal 2015. Inventories at the end of the third quarter of fiscal 2016 increased by 2 percent to $364.5 million compared to $357.8 million at the end of the third quarter of fiscal 2015. The company ended the quarter with 389 stores.

The company’s board of directors approved a stock repurchase program for up to $100 million of its common shares in the open market at prevailing market prices.

Laurent Potdevin, Lululemon’s CEO, stated: “Our third-quarter results demonstrated strong execution across all areas of our business as we delivered continued topline momentum, outperformed in gross margin and inflected meaningfully in EPS. This success is a result of our team’s ongoing effort and commitment to delivering on our long term strategies.”

Potdevin continued: “As we entered the fourth quarter, we experienced mixed sales results that have since improved. I am inspired by the team’s response and passion towards making this another successful holiday season, and I am confident that we will continue to deliver an unparalleled guest experience across all our channels and regions around the globe.”

Updated Outlook
For the fourth quarter of fiscal 2016, the company expects net revenue to be in the range of $765 million to $785 million based on total comparable sales in the mid single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of 96 cents to $1.01 for the quarter. This guidance assumes 137.3 million diluted weighted-average shares outstanding and a 31.2 percent tax rate.

For the full fiscal 2016, net revenue is now expected to be in the range of $2.32 billion to $2.34 billion based on total comparable sales in the mid single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $2.18 to $2.23 for the full year, or $2.11 to $2.16 normalized for the tax and related interest adjustments made during the first three quarters of fiscal 2016. This guidance assumes 137.3 million diluted weighted-average shares outstanding and a 28.2 percent tax rate, or 30.9 percent excluding the above tax and related interest adjustments.

Under its former guidance, sales for the year were expected to arrive in the range of $2.325 billion to $2.350 billion based on total comparable sales in the mid single digits on a constant dollar basis. EPS was expected to be in the range of $2.11 to $2.19 for the full year, or $2.07 to $2.15 normalized for the tax and related interest adjustments.

Photo courtesy Lululemon