lululemon athletica inc. Announces Second Quarter Fiscal 2023 Results

Revenue increased 18% to $2.2 billion
Comparable sales increased 11%, or increased 13% on a constant dollar basis
Diluted EPS of $2.68

VANCOUVER, British Columbia--()--lululemon athletica inc. (NASDAQ:LULU) today announced financial results for the second quarter of fiscal 2023.

Calvin McDonald, Chief Executive Officer, stated: "Our Q2 results highlight the ongoing strength of the business amid a dynamic operating environment. I am proud of how our teams continue to deliver on our vision and offer an exciting pipeline of new products and experiences to our guests around the world. Our continued ability to gain market share and bring new customers into the brand illustrates the significant runway ahead for lululemon."

The adjusted non-GAAP financial measures below exclude the gain on the sale of an administrative office building in 2022 and the related tax effects.

For the second quarter of 2023, compared to the second quarter of 2022:

  • Net revenue increased 18% to $2.2 billion, or increased 20% on a constant dollar basis.
    • Net revenue increased 11% in North America, and increased 52% internationally.
  • Total comparable sales increased 11%, or 13% on a constant dollar basis.
    • Comparable store sales increased 7%, or 9% on a constant dollar basis.
    • Direct to consumer net revenue increased 15%, or 17% on a constant dollar basis.
  • Direct to consumer net revenue represented 40% of total net revenue compared to 42% for the second quarter of 2022.
  • Gross profit increased 23% to $1.3 billion and gross margin increased 230 basis points to 58.8%.
  • Income from operations increased 19% to $479.3 million. Adjusted income from operations increased 23%.
  • Operating margin increased 20 basis points to 21.7%. Adjusted operating margin increased 80 basis points.
  • Income tax expense increased 30% to $145.0 million. The effective tax rate for the second quarter of 2023 was 29.8% compared to 27.9% for the second quarter of 2022. The adjusted effective tax rate was 28.2% for the second quarter of 2022.
  • Diluted earnings per share were $2.68 compared to $2.26 in the second quarter of 2022. Adjusted diluted earnings per share were $2.20 in the second quarter of 2022.
  • The Company repurchased 0.5 million shares of its own common stock at an average price of $370.99 per share for a cost of $191.7 million.
  • The Company opened 10 net new company-operated stores during the second quarter, ending with 672 stores.

Meghan Frank, Chief Financial Officer, stated: "Our performance remained strong in Q2 as both revenue and EPS exceeded our expectations. Our ongoing momentum is a reflection of our portfolio approach to growth, differentiated business model, and innovative product assortment. We are excited about our opportunities in the second half of the year and look forward to continue delivering on our Power of Three ×2 growth plan."

Balance sheet highlights

The Company ended the second quarter of 2023 with $1.1 billion in cash and cash equivalents and the capacity under its committed revolving credit facility was $393.6 million.

Inventories at the end of the second quarter of 2023 increased 14% to $1.7 billion compared to $1.5 billion at the end of the second quarter of 2022.

2023 Outlook

For the third quarter of 2023, the Company expects net revenue to be in the range of $2.165 billion to $2.190 billion, representing growth of 17% to 18%. Diluted earnings per share are expected to be in the range of $2.23 to $2.28 for the quarter. This assumes a tax rate of approximately 30.5%.

For 2023, the Company expects net revenue to be in the range of $9.510 billion to $9.570 billion, representing growth of 17% to 18%. Diluted earnings per share are expected to be in the range of $12.02 to $12.17 for the year. This assumes a tax rate of approximately 30%.

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, including macroeconomic trends. 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.

Power of Three ×2

The Company's Power of Three ×2 growth plan calls for a doubling of the business from 2021 net revenue of $6.25 billion to $12.5 billion by 2026. The key pillars of the plan are product innovation, guest experience, and market expansion and the growth strategy includes a plan to double men's, double direct to consumer, and quadruple international net revenue relative to 2021.

Conference Call Information

A conference call to discuss second quarter results is scheduled for today, August 31, 2023, 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: https://corporate.lululemon.com/investors/news-and-events/events-and-presentations. 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 technical athletic apparel, footwear, and accessories company for yoga, running, training, and most other activities, creating transformational products and experiences that build meaningful connections, unlocking greater possibility and wellbeing for all. Setting the bar in innovation of fabrics and functional designs, lululemon works with yogis and athletes in local communities around the world for continuous research and product feedback. For more information, visit 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 currency exchange rates for the period remained constant with the average foreign currency 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 currency exchange rates.

Adjusted income from operations, operating margin, income tax expense, effective tax rates, net income, and diluted earnings per share exclude the gain on disposal of assets for the sale of an administrative office building and its related income tax effects in 2022.

The Company believes these adjusted financial measures are useful to investors as they provide supplemental information that enable evaluation of the underlying trend in its operating performance, and enable a comparison to its historical financial information. Further, due to the finite and discrete nature of this item, it does not consider it to be a disposal gain that is expected to arise in the normal course of its operations. 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; changes in consumer shopping preferences and shifts in distribution channels; the acceptability of its products to guests; its highly competitive market and increasing competition; increasing costs and decreasing selling prices; its ability to anticipate consumer preferences and successfully develop and introduce new, innovative and updated products; its ability to accurately forecast guest demand for its products; its ability to expand in light of its limited operating experience and limited brand recognition in new international markets and new product categories; 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; disruptions of its supply chain; its reliance on a relatively small number of vendors to supply and manufacture a significant portion of its products; 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 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 or regional health events such as the current COVID-19 pandemic and related government, private sector, and individual consumer responsive actions; global economic and political conditions; 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 patents 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.

The fiscal year ending January 28, 2024 is referred to as "2023", the fiscal year ended January 29, 2023 is referred to as "2022".

Condensed Consolidated Statements of Operations
Unaudited; Expressed in thousands, except per share amounts

 

 

Second Quarter

 

First Two Quarters

 

 

2023

 

2022

 

2023

 

2022

Net revenue

 

$

2,209,165

 

 

$

1,868,328

 

 

$

4,209,957

 

 

$

3,481,791

 

Costs of goods sold

 

 

910,654

 

 

 

812,852

 

 

 

1,760,641

 

 

 

1,555,922

 

Gross profit

 

 

1,298,511

 

 

 

1,055,476

 

 

 

2,449,316

 

 

 

1,925,869

 

As a percent of net revenue

 

 

58.8

%

 

 

56.5

%

 

 

58.2

%

 

 

55.3

%

Selling, general and administrative expenses

 

 

817,375

 

 

 

662,253

 

 

 

1,564,888

 

 

 

1,270,104

 

As a percent of net revenue

 

 

37.0

%

 

 

35.4

%

 

 

37.2

%

 

 

36.5

%

Amortization of intangible assets

 

 

1,879

 

 

 

2,195

 

 

 

3,757

 

 

 

4,390

 

Gain on disposal of assets

 

 

 

 

 

(10,180

)

 

 

 

 

 

(10,180

)

Income from operations

 

 

479,257

 

 

 

401,208

 

 

 

880,671

 

 

 

661,555

 

As a percent of net revenue

 

 

21.7

%

 

 

21.5

%

 

 

20.9

%

 

 

19.0

%

Other income (expense), net

 

 

7,362

 

 

 

145

 

 

 

15,387

 

 

 

123

 

Income before income tax expense

 

 

486,619

 

 

 

401,353

 

 

 

896,058

 

 

 

661,678

 

Income tax expense

 

 

145,016

 

 

 

111,832

 

 

 

264,050

 

 

 

182,159

 

Net income

 

$

341,603

 

 

$

289,521

 

 

$

632,008

 

 

$

479,519

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

2.69

 

 

$

2.27

 

 

$

4.97

 

 

$

3.75

 

Diluted earnings per share

 

$

2.68

 

 

$

2.26

 

 

$

4.96

 

 

$

3.74

 

Basic weighted-average shares outstanding

 

 

126,969

 

 

 

127,619

 

 

 

127,108

 

 

 

127,848

 

Diluted weighted-average shares outstanding

 

 

127,263

 

 

 

127,906

 

 

 

127,442

 

 

 

128,224

 

lululemon athletica inc.

Condensed Consolidated Balance Sheets
Unaudited; Expressed in thousands

 

 

July 30,
2023

 

January 29,
2023

 

July 31,
2022

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,107,530

 

$

1,154,867

 

$

498,831

Inventories

 

 

1,660,753

 

 

1,447,367

 

 

1,462,076

Prepaid and receivable income taxes

 

 

224,916

 

 

185,641

 

 

166,438

Other current assets

 

 

330,734

 

 

371,578

 

 

259,749

Total current assets

 

 

3,323,933

 

 

3,159,453

 

 

2,387,094

Property and equipment, net

 

 

1,367,172

 

 

1,269,614

 

 

1,059,859

Right-of-use lease assets

 

 

1,079,198

 

 

969,419

 

 

867,901

Goodwill and intangible assets, net

 

 

42,380

 

 

46,105

 

 

453,776

Deferred income taxes and other non-current assets

 

 

179,775

 

 

162,447

 

 

152,081

Total assets

 

$

5,992,458

 

$

5,607,038

 

$

4,920,711

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

298,914

 

$

172,732

 

$

259,927

Accrued liabilities and other

 

 

399,178

 

 

399,223

 

 

345,105

Accrued compensation and related expenses

 

 

192,289

 

 

248,167

 

 

153,381

Current lease liabilities

 

 

216,837

 

 

207,972

 

 

196,259

Current income taxes payable

 

 

20,576

 

 

174,221

 

 

50,815

Unredeemed gift card liability

 

 

216,116

 

 

251,478

 

 

172,666

Other current liabilities

 

 

42,460

 

 

38,405

 

 

29,057

Total current liabilities

 

 

1,386,370

 

 

1,492,198

 

 

1,207,210

Non-current lease liabilities

 

 

976,736

 

 

862,362

 

 

757,865

Non-current income taxes payable

 

 

15,864

 

 

28,555

 

 

28,555

Deferred income tax liability

 

 

55,258

 

 

55,084

 

 

53,271

Other non-current liabilities

 

 

24,748

 

 

20,040

 

 

16,012

Stockholders' equity

 

 

3,533,482

 

 

3,148,799

 

 

2,857,798

Total liabilities and stockholders' equity

 

$

5,992,458

 

$

5,607,038

 

$

4,920,711

lululemon athletica inc.

Condensed Consolidated Statements of Cash Flows
Unaudited; Expressed in thousands

 

 

First Two Quarters

 

 

2023

 

2022

Cash flows from operating activities

 

 

 

 

Net income

 

$

632,008

 

 

$

479,519

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities

 

 

(109,795

)

 

 

(625,137

)

Net cash provided by (used in) operating activities

 

 

522,213

 

 

 

(145,618

)

Net cash used in investing activities

 

 

(283,660

)

 

 

(224,944

)

Net cash used in financing activities

 

 

(305,651

)

 

 

(384,576

)

Effect of foreign currency exchange rate changes on cash and cash equivalents

 

 

19,761

 

 

 

(5,902

)

Increase (decrease) in cash and cash equivalents

 

 

(47,337

)

 

 

(761,040

)

Cash and cash equivalents, beginning of period

 

 

1,154,867

 

 

 

1,259,871

 

Cash and cash equivalents, end of period

 

$

1,107,530

 

 

$

498,831

 

lululemon athletica inc.

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

Constant dollar changes in net revenue, total comparable sales, comparable store sales, and direct to consumer net revenue

The below changes show the change for the second quarter of 2023 compared to the second quarter of 2022.

 

 

Net Revenue

 

Total
Comparable
Sales(1),(2)

 

Comparable
Store Sales(2)

 

Direct to
Consumer Net
Revenue

Change

 

18

%

 

11

%

 

7

%

 

15

%

Adjustments due to foreign currency exchange rate changes

 

2

 

 

2

 

 

2

 

 

2

 

Change in constant dollars

 

20

%

 

13

%

 

9

%

 

17

%

______________

(1)

 

Total comparable sales includes comparable store sales and direct to consumer net revenue.

(2)

 

Comparable store sales reflects net revenue from company-operated stores that have been open for at least 12 full fiscal months, or open for at least 12 full fiscal months after being significantly expanded. Comparable store sales exclude sales from stores which have been temporarily relocated for renovations or have been temporarily closed.

Adjusted financial measures

The following tables reconcile adjusted financial measures with the most directly comparable measures calculated in accordance with GAAP. The 2022 adjustments relate to the gain on sale of an administrative office building and its related tax effects. Please refer to Note 3. Gain on Disposal of Assets included in Item 1 of Part I of the Company's Report on Form 10-Q to be filed with the SEC on or about August 31, 2023 for further information on these adjustments.

 

 

Second Quarter 2022

 

 

Income from
Operations

 

Operating
Margin

 

Income Tax
Expense

 

Effective Tax
Rate

 

Net Income

 

Diluted
Earnings Per
Share

GAAP results

 

$

401,208

 

 

21.5

%

 

$

111,832

 

 

27.9

%

 

$

289,521

 

 

$

2.26

 

Gain on disposal of assets

 

 

(10,180

)

 

(0.6

)

 

 

 

 

 

 

(10,180

)

 

 

(0.07

)

Tax effect of the above

 

 

 

 

 

 

(1,661

)

 

0.3

 

 

 

1,661

 

 

 

0.01

 

Adjusted results (non-GAAP)

 

$

391,028

 

 

20.9

%

 

$

110,171

 

 

28.2

%

 

$

281,002

 

 

$

2.20

 

 

 

First Two Quarters 2022

 

 

Income from
Operations

 

Operating
Margin

 

Income Tax
Expense

 

Effective Tax
Rate

 

Net Income

 

Diluted
Earnings Per
Share

GAAP results

 

$

661,555

 

 

19.0

%

 

$

182,159

 

 

27.5

%

 

$

479,519

 

 

$

3.74

 

Gain on disposal of assets

 

 

(10,180

)

 

(0.3

)

 

 

 

 

 

 

(10,180

)

 

 

(0.08

)

Tax effect of the above

 

 

 

 

 

 

(1,661

)

 

0.2

 

 

 

1,661

 

 

 

0.01

 

Adjusted results (non-GAAP)

 

$

651,375

 

 

18.7

%

 

$

180,498

 

 

27.7

%

 

$

471,000

 

 

$

3.67

 

lululemon athletica inc.

Company-operated Store Count and Square Footage(1)
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

3rd Quarter 2022

 

600

 

25

 

2

 

623

4th Quarter 2022

 

623

 

34

 

2

 

655

1st Quarter 2023

 

655

 

10

 

3

 

662

2nd Quarter 2023

 

662

 

12

 

2

 

672

 

 

Total Gross
Square Feet at
the Beginning
of the Quarter

 

Gross Square
Feet Added
During the
Quarter(2)

 

Gross Square
Feet Lost
During the
Quarter(2)

 

Total Gross
Square Feet at
the End of the
Quarter

3rd Quarter 2022

 

2,258

 

139

 

7

 

2,390

4th Quarter 2022

 

2,390

 

189

 

4

 

2,575

1st Quarter 2023

 

2,575

 

64

 

7

 

2,632

2nd Quarter 2023

 

2,632

 

64

 

5

 

2,691

______________

(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.

 

Contacts

Investors:
lululemon athletica inc.
Howard Tubin
1-604-732-6124
or
ICR, Inc.
Joseph Teklits/Caitlin Churchill
1-203-682-8200

Media:
lululemon athletica inc.
Erin Hankinson
1-604-732-6124
or
lululemon athletica inc.
Madi Wallace
1-604-732-6124

Contacts

Investors:
lululemon athletica inc.
Howard Tubin
1-604-732-6124
or
ICR, Inc.
Joseph Teklits/Caitlin Churchill
1-203-682-8200

Media:
lululemon athletica inc.
Erin Hankinson
1-604-732-6124
or
lululemon athletica inc.
Madi Wallace
1-604-732-6124