Lululemon Athletica Inc. reported earnings and revenue for the fourth quarter that surpassed Wall Street expectations and its revised guidance.

The company on Tuesday afternoon reported diluted earnings per share of $0.88 for the fourth quarter of fiscal 2017. Excluding the impact of the Ivivva restructuring and the U.S. tax reform, the company reported adjusted diluted earnings per share of $1.33 and revenue of $928.8 million, above expectations of $1.27 and $912 million.

On Jan. 8, the company revised its Q4 guidance upward to revenue between $905 million and $915 million, up from $870 million to $885 million. The company expected its diluted earnings per share to be in the range of $1.24 to $1.26 for the fourth quarter. Excluding the impact of the restructuring of its Ivivva operations, Lululemon had expected adjusted diluted earnings per share to be in the range of $1.25 to $1.27 for the quarter; previous diluted earnings per share guidance for the fourth quarter was a range of $1.18 to $1.21, or $1.19 to $1.22 excluding the impact of the ivivva restructuring.

For the fourth quarter ended Jan. 28:

  • Net revenue was $928.8 million, an increase of 18 percent compared to the fourth quarter of fiscal 2016. On a constant dollar basis, net revenue increased 16 percent.
  • Total comparable sales increased 12 percent, or increased 11 percent on a constant dollar basis.
    • Comparable store sales increased 2 percent, or increased 1 percent on a constant dollar basis.
    • Direct-to-consumer net revenue increased 44 percent, or increased 42 percent on a constant dollar basis.
  • Gross profit was $522.5 million, an increase of 22 percent compared to the fourth quarter of fiscal 2016. Adjusted gross profit was $522.4 million, an increase of 22 percent.
  • Gross margin was 56.3 percent, an increase of 210 basis points compared to the fourth quarter of fiscal 2016. Adjusted gross margin was 56.2 percent, an increase of 200 basis points.
  • Income from operations was $256.3 million, an increase of 30 percent compared to the fourth quarter of fiscal 2016. Adjusted income from operations increased $61.5 million, or 31 percent, to $258.1 million.
  • Operating margin was 27.6 percent, an increase of 270 basis points compared to the fourth quarter of fiscal 2016. Adjusted operating margin was 27.8 percent, an increase of 290 basis points.
  • Income tax expense was $137.7 million compared to $61.4 million in the fourth quarter of fiscal 2016 and the effective tax rate was 53.5 percent compared to 31.1 percent. The adjusted effective tax rate was 30.6 percent compared to 30.6 percent in the fourth quarter of fiscal 2016.
  • Diluted earnings per share were $0.88 compared to $0.99 in the fourth quarter of fiscal 2016. Adjusted diluted earnings per share were $1.33 compared to $1.00 for the fourth quarter of fiscal 2016.

For the fiscal year ended Jan. 28:

  • Net revenue was $2.6 billion, an increase of 13 percent compared to fiscal 2016. On a constant dollar basis, net revenue increased 12 percent.
  • Total comparable sales increased 7 percent, or increased 7 percent on a constant dollar basis.
    • Comparable store sales increased 1 percent, or increased 1 percent on a constant dollar basis.
    • Direct-to-consumer net revenue increased 27 percent, or increased 27 percent on a constant dollar basis. Company-operated stores which have been open for at least one year averaged sales of $1,554 per square foot.
  • Company-operated stores which have been open for at least one year averaged sales of $1,554 per square foot.
  • Gross profit was $1.4 billion, an increase of 17 percent compared to fiscal 2016. Adjusted gross profit was $1.4 billion, an increase of 17 percent.
  • Gross margin was 52.8 percent, an increase of 160 basis points compared to fiscal 2016. Adjusted gross margin was 53.1 percent, an increase of 190 basis points.
  • Income from operations was $456.0 million, an increase of 8 percent compared to fiscal 2016. Adjusted income from operations increased $82.1 million, or 19 percent, to $503.2 million.
  • Operating margin was 17.2 percent, a decrease of 80 basis points compared to fiscal 2016. Adjusted operating margin was 19.0 percent, an increase of 100 basis points.
  • Income tax expense was $201.3 million compared to $119.3 million in fiscal 2016, and the effective tax rate was 43.8 percent compared to 28.2 percent for fiscal 2016. The adjusted effective tax rate was 30.5 percent compared to 30.7 percent for fiscal 2016.
  • Diluted earnings per share were $1.90 compared to $2.21 in fiscal 2016. Adjusted diluted earnings per share were $2.59 compared to $2.14 in fiscal 2016.
  • The company repurchased 1.9 million shares of its own common stock at an average cost of $53.85 per share in fiscal 2017. These shares were repurchased under both the previous $100 million stock repurchase program, which was completed in the third quarter of fiscal 2017, and the $200 million stock repurchase program, which commenced in November 2017.

The company ended fiscal 2017 with $990.5 million in cash and cash equivalents compared to $734.8 million at the end of fiscal 2016. Inventories at the end of fiscal 2017 increased by 10 percent to $329.6 million compared to $298.4 million at the end of fiscal 2016. The company ended the year with 404 stores.

This was the first earnings report for Lululemon since its announcement that Laurent Potdevin had resigned as CEO and as a member of the company’s board of directors.

Glenn Murphy, executive chairman of the board, said: “We are pleased with our results for the fourth quarter and fiscal year 2017. The company continues to execute successfully on its global growth strategies and I would like to thank our entire team … for their leadership in driving this strong performance.”

Stuart Haselden, COO, said: “We are seeing strong momentum across our business as we now move into 2018, which is further positioning us to achieve our 2020 revenue goal of $4 billion. Importantly, we would like to thank our store educators, ambassadors and the Lululemon collective around the world for their energy and passion that is enabling our continued success.”

Fiscal 2018 Outlook

For the first quarter of fiscal 2018, Lululemon expects net revenue to be in the range of $612 million to $617 million based on a total comparable sales increase in the low double digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $0.44 to $0.46 for the quarter. This guidance assumes 136.3 million diluted weighted-average shares outstanding and a 29.0 percent tax rate. The guidance does not reflect potential future repurchases of the company’s shares or any further adjustments which may be recognized in connection with the U.S. tax reform.

For the full fiscal 2018, the company expects net revenue to be in the range of $2.99 billion to $3.02 billion based on a total comparable sales increase in the mid-to-high single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $3.00 to $3.08 for the full year. This guidance assumes 136.3 million diluted weighted-average shares outstanding and a 29.0 percent tax rate. The guidance does not reflect potential future repurchases of the company’s shares or any further adjustments which may be recognized in connection with the U.S. tax reform. Fiscal 2018 is a 53-week year.

Photo courtesy Lululemon