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lululemon athletica inc. Announces First Quarter Fiscal 2021 Results

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lululemon athletica inc. (NASDAQ:LULU) today announced financial results for the first quarter of fiscal 2021.

Calvin McDonald, Chief Executive Officer, stated: "Our first quarter results reflected strength across all drivers of growth, fueled by the continued expansion in our e-commerce business and a rebound in brick and mortar stores. Our strong performance across categories, channels and geographies demonstrates the momentum and strength of lululemon as we shift into the new normal. All of us on the leadership team are grateful to our teams around the world who enabled these results, and who continue to focus on realizing growth."

The fiscal year ending January 30, 2022 is referred to as "2021" and the fiscal year ended January 31, 2021 is referred to as "2020". 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 first quarter of 2021, compared to the first quarter of 2020:

  • Net revenue increased 88% to $1.2 billion. On a constant dollar basis, net revenue increased 83%.
    • Company-operated stores net revenue increased 106% to $536.6 million.
    • Direct to consumer net revenue increased 55% to $545.1 million. On a constant dollar basis, direct to consumer net revenue increased 50%.
    • Net revenue increased 82% in North America, and increased 125% internationally.
  • Direct to consumer net revenue represented 44.4% of total net revenue compared to 54.0% for the first quarter of 2020.
  • Gross profit increased 109% to $700.3 million and gross margin increased 580 basis points to 57.1%.
  • Income from operations increased 492% to $193.8 million. Adjusted income from operations increased 479% to $201.5 million.
  • Operating margin increased 1,080 basis points to 15.8%. Adjusted operating margin increased 1,110 basis points to 16.4%.
  • Income tax expense increased 827% to $49.1 million. The effective tax rate for the first quarter of 2021 was 25.3% compared to 15.6% for the first quarter of 2020. The adjusted effective tax rate was 24.5% for the first quarter of 2021 compared to 14.7% for the first quarter of 2020.
  • Diluted earnings per share were $1.11 compared to $0.22 in the first quarter of 2020. Adjusted diluted earnings per share were $1.16 compared to $0.23 in the first quarter of 2020.
  • The Company repurchased 0.3 million shares of its own common stock at an average cost of $311.02 per share.
  • The Company opened two net new company-operated stores during the quarter, ending with 523 stores.

The consolidated statement of operations for the first quarter of 2019 is included in the tables at the end of this release for reference. For the first quarter of 2021, compared to the first quarter of 2019:

  • Net revenue increased by $444.2 million, or 57%, representing a two-year compound annual growth rate of 25%.
  • Gross margin increased 320 basis points.
  • Operating margin decreased 70 basis points. Adjusted operating margin decreased 10 basis points.
  • Diluted earnings per share were $1.11 compared to $0.74 in the first quarter of 2019. Adjusted diluted earnings per share were $1.16 in the first quarter of 2021.

Meghan Frank, Chief Financial Officer, stated: "We are very pleased with our Q1 results, which reflect significant growth in the business compared to both 2020 and 2019. Our momentum remains strong as we enter the second quarter, and we are raising our estimates for the year accordingly. The strength of our financial position allows us to continue to deliver against the Power of Three growth strategies, while we leverage both near- and long-term opportunities."

Balance sheet highlights

The Company ended the first quarter of 2021 with $1.2 billion in cash and cash equivalents and the capacity under its committed revolving credit facilities was $397.3 million. Inventories at the end of the first quarter of 2021 increased 17% to $732.9 million compared to $625.8 million at the end of the first quarter of 2020.

2021 Outlook

For the second quarter of 2021, we expect net revenue to be in the range of $1.300 billion to $1.330 billion. Diluted earnings per share are expected to be in the range of $1.05 to $1.10 for the quarter and adjusted diluted earnings per share are expected to be in the range of $1.10 to $1.15.

For 2021, we expect net revenue to be in the range of $5.825 billion to $5.905 billion. Diluted earnings per share are expected to be in the range of $6.52 to $6.65 for the year and adjusted diluted earnings per share are expected to be in the range of $6.73 to $6.86.

The guidance does not reflect potential future repurchases of the Company's shares.

The guidance and outlook forward-looking statements made in this press release are based on management's expectations as of the date of this press release and does not incorporate future unknown impacts from the spread of COVID-19. While most of the Company's retail locations are currently open, the Company continues to operate its distribution centers and retail locations with restrictive and precautionary measures in place. These measures are market dependent and can include restricted occupancy levels, physical distancing, enhanced cleaning and sanitation, and reduced operating hours. Further resurgences in COVID-19, including from variants could cause additional restrictions, including temporarily closing all or some of our retail locations again, result in lower consumer demand, and cause disruption in our supply chain. The Company undertakes no duty to update or to continue to provide information with respect to any forward-looking statements or risk factors, whether as a result of new information or future events or circumstances or otherwise. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of risks and uncertainties, including those stated below.

Conference Call Information

A conference call to discuss first quarter results is scheduled for today, June 3, 2021, at 4:30 p.m. Eastern time. Those interested in participating in the call are invited to dial 1-800-319-4610 or 1-604-638-5340, if calling internationally, approximately 10 minutes prior to the start of the call. A live webcast of the conference call will be available online at: http://investor.lululemon.com/events.cfm. A replay will be made available online approximately two hours following the live call for a period of 30 days.

About lululemon athletica inc.

lululemon athletica inc. (NASDAQ:LULU) is a healthy lifestyle inspired athletic apparel company for yoga, running, training, and most other sweaty pursuits, creating transformational products and experiences which enable people to live a life they love. Setting the bar in technical fabrics and functional designs, lululemon works with yogis and athletes in local communities for continuous research and product feedback. For more information, visit www.lululemon.com.

Non-GAAP Financial Measures

Constant dollar changes and adjusted financial results are non-GAAP financial measures. A constant dollar basis assumes the average foreign exchange rates for the period remained constant with the average foreign exchange rates for the same period of the prior year. The Company provides constant dollar changes in its results to help investors understand the underlying growth rate of net revenue excluding the impact of changes in foreign exchange rates.

Adjusted income from operations, operating margin, income tax expense, effective tax rates, net income, and diluted earnings per share exclude items related to the MIRROR acquisition. We exclude transaction, integration costs, the gain on lululemon's previous investment in MIRROR, certain acquisition-related compensation costs, and the related income tax effects of these items. We believe these adjusted financial measures are useful to investors as they provide supplemental information that enable evaluation of the underlying trend in our operating performance, and enable a more consistent comparison to our historical financial information. Further, due to the finite and discrete nature of these costs, we do not consider them to be normal operating expenses that are necessary to operate the MIRROR business and we do not expect them to recur beyond the expiry of the related vesting periods. Management uses these adjusted financial measures and constant currency metrics internally when reviewing and assessing financial performance.

The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or with greater prominence to, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the section captioned "Reconciliation of Non-GAAP Financial Measures" included in the accompanying financial tables, which includes more detail on the GAAP financial measure that is most directly comparable to each non-GAAP financial measure, and the related reconciliations between these financial measures.

Forward-Looking Statements:

This press release includes estimates, projections, statements relating to the Company's business plans, objectives, and expected operating results that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In many cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "outlook," "believes," "intends," "estimates," "predicts," "potential" or the negative of these terms or other comparable terminology. These forward-looking statements also include the Company's guidance and outlook statements. These statements are based on management's current expectations but they involve a number of risks and uncertainties. Actual results and the timing of events could differ materially from those anticipated in the forward-looking statements as a result of risks and uncertainties, which include, without limitation: the Company's ability to maintain the value and reputation of its brand; the current COVID-19 coronavirus pandemic and related government, private sector, and individual consumer responsive actions; its highly competitive market and increasing competition; increasing product costs and decreasing selling prices; its ability to anticipate consumer preferences and successfully develop and introduce new, innovative and updated products; the acceptability of its products to guests; its ability to accurately forecast guest demand for its products; changes in consumer shopping preferences and shifts in distribution channels; its ability to expand internationally in light of its limited operating experience and limited brand recognition in new international markets; its ability to realize the potential benefits and synergies sought with the acquisition of MIRROR; its ability to manage its growth and the increased complexity of its business effectively; its ability to successfully open new store locations in a timely manner; seasonality; its reliance on and limited control over third-party suppliers to provide fabrics for and to produce its products; the operations of many of its suppliers are subject to international and other risks; suppliers or manufacturers not complying with its Vendor Code of Ethics or applicable laws; its ability to deliver its products to the market and to meet guest expectations if it has problems with its distribution system; increasing labor costs and other factors associated with the production of its products in South Asia and South East Asia; its ability to safeguard against security breaches with respect to its information technology systems; its compliance with privacy and data protection laws; any material disruption of its information systems; its ability to have technology-based systems function effectively and grow its e-commerce business globally; climate change, and related legislative and regulatory responses; increased scrutiny regarding its environmental, social, and governance, or sustainability responsibilities; an economic recession, depression, or downturn or economic uncertainty in its key markets; global economic and political conditions and global events such as health pandemics; its ability to source and sell its merchandise profitably or at all if new trade restrictions are imposed or existing trade restrictions become more burdensome; changes in tax laws or unanticipated tax liabilities; its ability to comply with trade and other regulations; fluctuations in foreign currency exchange rates; imitation by its competitors; its ability to protect its intellectual property rights; conflicting trademarks and the prevention of sale of certain products; its exposure to various types of litigation; and other risks and uncertainties set out in filings made from time to time with the United States Securities and Exchange Commission and available at www.sec.gov, including, without limitation, its most recent reports on Form 10-K and Form 10-Q. You are urged to consider these factors carefully in evaluating the forward-looking statements contained herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by these cautionary statements. The forward-looking statements made herein speak only as of the date of this press release and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances, except as may be required by law.

lululemon athletica inc.

Condensed Consolidated Statements of Operations

Unaudited; Expressed in thousands, except per share amounts

 

 

First Quarter

 

 

2021

 

2020

 

2019

Net revenue

 

$

1,226,465

 

 

$

651,962

 

 

$

782,315

 

Costs of goods sold

 

526,151

 

 

317,560

 

 

360,595

 

Gross profit

 

700,314

 

 

334,402

 

 

421,720

 

As a percent of net revenue

 

57.1

%

 

51.3

%

 

53.9

%

Selling, general and administrative expenses

 

496,634

 

 

299,583

 

 

292,908

 

As a percent of net revenue

 

40.5

%

 

46.0

%

 

37.4

%

Amortization of intangible assets

 

2,195

 

 

23

 

 

 

Acquisition-related expenses

 

7,664

 

 

2,045

 

 

 

Income from operations

 

193,821

 

 

32,751

 

 

128,812

 

As a percent of net revenue

 

15.8

%

 

5.0

%

 

16.5

%

Other income (expense), net

 

227

 

 

1,174

 

 

2,379

 

Income before income tax expense

 

194,048

 

 

33,925

 

 

131,191

 

Income tax expense

 

49,092

 

 

5,293

 

 

34,588

 

Net income

 

$

144,956

 

 

$

28,632

 

 

$

96,603

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

1.11

 

 

$

0.22

 

 

$

0.74

 

Diluted earnings per share

 

$

1.11

 

 

$

0.22

 

 

$

0.74

 

Basic weighted-average shares outstanding

 

130,358

 

 

130,251

 

 

130,694

 

Diluted weighted-average shares outstanding

 

130,984

 

 

130,803

 

 

131,337

 

lululemon athletica inc.

Condensed Consolidated Balance Sheets

Unaudited; Expressed in thousands

 

 

May 2,
2021

 

January 31,
2021

 

May 3,
2020

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,179,739

 

 

$

1,150,517

 

 

$

823,006

 

Inventories

 

732,890

 

 

647,230

 

 

625,849

 

Prepaid and receivable income taxes

 

139,123

 

 

139,126

 

 

89,316

 

Other current assets

 

201,700

 

 

187,506

 

 

156,374

 

Total current assets

 

2,253,452

 

 

2,124,379

 

 

1,694,545

 

Property and equipment, net

 

774,685

 

 

745,687

 

 

659,265

 

Right-of-use lease assets

 

719,139

 

 

734,835

 

 

731,883

 

Goodwill and intangible assets, net

 

465,000

 

 

466,957

 

 

24,044

 

Deferred income taxes and other non-current assets

 

117,555

 

 

113,357

 

 

92,049

 

Total assets

 

$

4,329,831

 

 

$

4,185,215

 

 

$

3,201,786

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

196,934

 

 

$

172,246

 

 

$

78,940

 

Accrued inventory liabilities

 

9,356

 

 

14,956

 

 

9,860

 

Other accrued liabilities

 

258,642

 

 

211,911

 

 

166,994

 

Accrued compensation and related expenses

 

154,729

 

 

130,171

 

 

69,455

 

Current lease liabilities

 

168,145

 

 

166,091

 

 

144,646

 

Current income taxes payable

 

7,997

 

 

8,357

 

 

28,729

 

Unredeemed gift card liability

 

141,149

 

 

155,848

 

 

105,286

 

Other current liabilities

 

27,862

 

 

23,598

 

 

27,586

 

Total current liabilities

 

964,814

 

 

883,178

 

 

631,496

 

Non-current lease liabilities

 

616,917

 

 

632,590

 

 

639,242

 

Non-current income taxes payable

 

38,073

 

 

43,150

 

 

48,226

 

Deferred income tax liability

 

60,807

 

 

58,755

 

 

40,764

 

Other non-current liabilities

 

9,365

 

 

8,976

 

 

6,271

 

Stockholders' equity

 

2,639,855

 

 

2,558,566

 

 

1,835,787

 

Total liabilities and stockholders' equity

 

$

4,329,831

 

 

$

4,185,215

 

 

$

3,201,786

 

lululemon athletica inc.

Condensed Consolidated Statements of Cash Flows

Unaudited; Expressed in thousands

 

 

First Quarter

 

 

2021

 

2020

Cash flows from operating activities

 

 

 

 

Net income

 

$

144,956

 

 

$

28,632

 

Adjustments to reconcile net income to net cash provided by operating activities

 

69,153

 

 

(149,875

)

Net cash provided by (used in) operating activities

 

214,109

 

 

(121,243

)

Net cash used in investing activities

 

(85,464

)

 

(45,626

)

Net cash used in financing activities

 

(122,235

)

 

(90,587

)

Effect of exchange rate changes on cash

 

22,812

 

 

(13,043

)

Increase (decrease) in cash and cash equivalents

 

29,222

 

 

(270,499

)

Cash and cash equivalents, beginning of period

 

1,150,517

 

 

1,093,505

 

Cash and cash equivalents, end of period

 

$

1,179,739

 

 

$

823,006

 

lululemon athletica inc.
Reconciliation of Non-GAAP Financial Measures
Unaudited; Expressed in thousands, except per share amounts

Constant dollar changes in net revenue, and direct to consumer net revenue

The below changes show the change for the first quarter of 2021 compared to the first quarter of 2020.

 

 

Net Revenue

 

Direct to
Consumer Net
Revenue

Change

 

88

%

 

55

%

Adjustments due to foreign exchange rate changes

 

(5

)

 

(5

)

Change in constant dollars

 

83

%

 

50

%

Adjusted financial measures

The following tables reconcile adjusted financial measures with the most directly comparable measures calculated in accordance with GAAP. The adjustments relate to the acquisition of MIRROR and its related tax effects. Please refer to Note 3. Acquisition included in Item 1 of Part I of our Report on Form 10-Q to be filed with the SEC on or about June 3, 2021 for further information on these adjustments.

 

 

First Quarter 2021

 

 

Income from
Operations

 

Operating
Margin

 

Income Tax
Expense

 

Effective Tax
Rate

 

Net Income

 

Diluted
Earnings Per
Share

GAAP results

 

$

193,821

 

 

15.8

%

 

$

49,092

 

 

25.3

%

 

$

144,956

 

 

$

1.11

 

Transaction and integration costs

 

496

 

 

 

 

 

 

 

 

496

 

 

 

Acquisition-related compensation

 

7,168

 

 

0.6

 

 

 

 

 

 

7,168

 

 

0.05

 

Tax effect of the above

 

 

 

 

 

372

 

 

(0.8

)

 

(372

)

 

 

Adjusted results (non-GAAP)

 

$

201,485

 

 

16.4

%

 

$

49,464

 

 

24.5

%

 

$

152,248

 

 

$

1.16

 

 

 

First Quarter 2020

 

 

Income from
Operations

 

Operating
Margin

 

Income Tax
Expense

 

Effective Tax
Rate

 

Net Income

 

Diluted
Earnings Per
Share

GAAP results

 

$

32,751

 

 

5.0

%

 

$

5,293

 

 

15.6

%

 

$

28,632

 

 

$

0.22

 

Transaction and integration costs

 

2,045

 

 

0.3

 

 

 

 

 

 

2,045

 

 

0.01

 

Tax effect of the above

 

 

 

 

 

 

 

(0.9

)

 

 

 

 

Adjusted results (non-GAAP)

 

$

34,796

 

 

5.3

%

 

$

5,293

 

 

14.7

%

 

$

30,677

 

 

$

0.23

 

Expected adjusted earnings per share

 

 

Second Quarter
Fiscal 2021

 

Fiscal 2021

Expected diluted earnings per share range

 

$1.05 to $1.10

 

$6.52 to $6.65

MIRROR integration and acquisition-related costs, net of tax

 

$0.05

 

$0.21

Expected adjusted earnings per share range (non-GAAP)

 

$1.10 to $1.15

 

$6.73 to $6.86

lululemon athletica inc.

Company-operated Store Count and Square Footage1

Square Footage Expressed in Thousands

 

 

Number of
Stores Open
at the
Beginning of
the Quarter

 

Number of
Stores Opened
During the
Quarter

 

Number of
Stores Closed
During the
Quarter

 

Number of
Stores Open
at the End of
the Quarter

2nd Quarter 2020

 

489

 

 

17

 

 

 

 

506

 

3rd Quarter 2020

 

506

 

 

11

 

 

2

 

 

515

 

4th Quarter 2020

 

515

 

 

8

 

 

2

 

 

521

 

1st Quarter 2021

 

521

 

 

3

 

 

1

 

 

523

 

 

 

Total Gross
Square Feet at
the Beginning
of the Quarter

 

Gross Square
Feet Added
During the
Quarter2

 

Gross Square
Feet Lost
During the
Quarter2

 

Total Gross
Square Feet at

the End of the
Quarter

2nd Quarter 2020

 

1,692

 

 

65

 

 

 

 

1,757

 

3rd Quarter 2020

 

1,757

 

 

54

 

 

3

 

 

1,808

 

4th Quarter 2020

 

1,808

 

 

55

 

 

5

 

 

1,858

 

1st Quarter 2021

 

1,858

 

 

12

 

 

8

 

 

1,862

 

__________

1

Company-operated store count and square footage summary excludes retail locations operated by third parties under license and supply arrangements.

2

Gross square feet added/lost during the quarter includes net square foot additions for company-operated stores which have been renovated or relocated in the quarter.

 

Lululemon Athletica inc.

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About LULU

yoga is our core, but we also make specialized gear for runners, dancers, bikers, sweaty generalists and stretchy-pants lovers alike. our stores can be found in sydney, jackson, anchorage, cologne, singapore and tons of places in between. our global vision remains the same as it was when we were selling gear out of a vancouver yoga studio in 1998: to inspire and enable people to live long, healthy, fun lives by creating technical, athletic gear to get sweaty in.