lululemon athletica inc. Announces Second Quarter Fiscal 2021 Results

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Revenue increased61% to $1.5 billion

Diluted EPS of $1.59, Adjusted EPS of $1.65

VANCOUVER, British Columbia — lululemon athletica inc. (NASDAQ:LULU) today announced financial results for the second quarter of fiscal 2021.

Calvin McDonald, Chief Executive Officer, stated: “Our second quarter results demonstrate the continued momentum across the business, and how we are living into our Power of Three growth plan and Impact Agenda commitments. We launched exciting new products, experienced strength across channels and geographies, and announced new partnerships that will allow us to become a leader in product sustainability.” McDonald continued: “I’m inspired every day by our teams around the world for their continued enthusiasm, agility, and commitment to the brand.”

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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 second quarter of 2021, compared to the second quarter of 2020:

  • Net revenue increased 61% to $1.5 billion. On a constant dollar basis, net revenue increased 56%.
    • Company-operated stores net revenue increased 142% to $695.1 million.
    • Direct to consumer net revenue increased 8% to $597.4 million. On a constant dollar basis, direct to consumer net revenue increased 4%.
    • Net revenue increased 63% in North America, and increased 49% internationally.
  • Direct to consumer net revenue represented 41.2% of total net revenue compared to 61.4% for the second quarter of 2020.
  • Gross profit increased 72% to $842.7 million and gross margin increased 390 basis points to 58.1%.
  • Income from operations increased 134% to $291.0 million. Adjusted income from operations increased 120% to $299.2 million.
  • Operating margin increased 630 basis points to 20.1%. Adjusted operating margin increased 560 basis points to 20.6%.
  • Income tax expense increased 123% to $83.1 million. The effective tax rate for the second quarter of 2021 was 28.5% compared to 30.0% for the second quarter of 2020. The adjusted effective tax rate was 27.9% for the second quarter of 2021 compared to 28.9% for the second quarter of 2020.
  • Diluted earnings per share were $1.59 compared to $0.66 in the second quarter of 2020. Adjusted diluted earnings per share were $1.65 compared to $0.74 in the second quarter of 2020.
  • The Company repurchased 0.5 million shares of its own common stock at an average price of $338.41 per share for a total cost of $171.1 million.
  • The Company opened 11 new company-operated stores during the second quarter, ending with 534 stores.

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

  • Net revenue increased by $567.3 million, or 64%, representing a two-year compound annual growth rate of 28%.
  • Gross margin increased 310 basis points.
  • Operating margin increased 110 basis points. Adjusted operating margin increased 160 basis points.
  • Diluted earnings per share were $1.59 compared to $0.96 in the second quarter of 2019. Adjusted diluted earnings per share were $1.65 in the second quarter of 2021.

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Meghan Frank, Chief Financial Officer, stated: “Our performance in Q2 was driven by a strong response to our product offering, improving productivity in our stores, and sustained strength in e-commerce. While we continue to navigate the COVID-19 environment, including supply chain headwinds, I’m excited with our momentum as we head into the second half of the year and pleased to be able to increase our guidance. I too would like to thank the teams across the globe for enabling our solid financial performance.”

Balance sheet highlights

The Company ended the second quarter of 2021 with $1.2 billion in cash and cash equivalents and the capacity under its committed revolving credit facilities was $397.2 million. Inventories at the end of the second quarter of 2021 increased 17% to $789.8 million compared to $672.8 million at the end of the second quarter of 2020.

2021 Outlook

For the third quarter of 2021, we expect net revenue to be in the range of $1.400 billion to $1.430 billion. Diluted earnings per share are expected to be in the range of $1.28 to $1.33 for the quarter and adjusted diluted earnings per share are expected to be in the range of $1.33 to $1.38.

For 2021, we expect net revenue to be in the range of $6.190 billion to $6.260 billion. Diluted earnings per share are expected to be in the range of $7.16 to $7.26 for the year and adjusted diluted earnings per share are expected to be in the range of $7.38 to $7.48.

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 with necessary precautionary measures in place at its retail locations and distribution centers. 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 further 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.

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Conference Call Information

A conference call to discuss second quarter results is scheduled for today, September 8, 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 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 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.

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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 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 in light of its limited operating experience and limited brand recognition in new international markets and new product categories; 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; disruptions of its supply chain; its reliance on and limited control over third-party suppliers to provide fabrics for and to produce 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 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.

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lululemon athletica inc.
Condensed Consolidated Statements of Operations
Unaudited; Expressed in thousands, except per share amounts

Second Quarter

First Two Quarters

2021

2020

2019

2021

2020

2019

Net revenue

$

1,450,618

$

902,942

$

883,352

$

2,677,083

$

1,554,904

$

1,665,667

Costs of goods sold

607,932

413,441

397,556

1,134,083

731,001

758,151

Gross profit

842,686

489,501

485,796

1,543,000

823,903

907,516

As a percent of net revenue

58.1%

54.2%

55.0%

57.6%

53.0%

54.5%

Selling, general and administrative expenses

541,317

352,881

317,814

1,037,951

652,464

610,722

As a percent of net revenue

37.3%

39.1%

36.0%

38.8%

42.0%

36.7%

Amortization of intangible assets

2,195

747

4,390

770

Acquisition-related expenses

8,143

11,464

15,807

13,509

Income from operations

291,031

124,409

167,982

484,852

157,160

296,794

As a percent of net revenue

20.1%

13.8%

19.0%

18.1%

10.1%

17.8%

Other income (expense), net

96

(344)

1,850

323

830

4,229

Income before income tax expense

291,127

124,065

169,832

485,175

157,990

301,023

Income tax expense

83,053

37,264

44,842

132,145

42,557

79,430

Net income

$

208,074

$

86,801

$

124,990

$

353,030

$

115,433

$

221,593

Basic earnings per share

$

1.60

$

0.67

$

0.96

$

2.71

$

0.89

$

1.70

Diluted earnings per share

$

1.59

$

0.66

$

0.96

$

2.70

$

0.88

$

1.69

Basic weighted-average shares outstanding

130,007

130,245

130,285

130,187

130,248

130,489

Diluted weighted-average shares outstanding

130,490

130,799

130,783

130,742

130,802

131,060

lululemon athletica inc.
Condensed Consolidated Balance Sheets
Unaudited; Expressed in thousands

August 1,
2021

January 31,
2021

August 2,
2020

ASSETS

Current assets

Cash and cash equivalents

$

1,170,041

$

1,150,517

$

522,998

Inventories

789,836

647,230

672,773

Prepaid and receivable income taxes

117,807

139,126

125,019

Other current assets

197,623

187,506

168,965

Total current assets

2,275,307

2,124,379

1,489,755

Property and equipment, net

806,387

745,687

698,514

Right-of-use lease assets

729,621

734,835

725,805

Goodwill and intangible assets, net

462,714

466,957

471,064

Deferred income taxes and other non-current assets

131,069

113,357

108,889

Total assets

$

4,405,098

$

4,185,215

$

3,494,027

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable

$

203,546

$

172,246

$

122,767

Accrued inventory liabilities

33,316

14,956

31,675

Other accrued liabilities

269,024

211,911

177,436

Accrued compensation and related expenses

150,331

130,171

84,102

Current lease liabilities

150,087

166,091

147,941

Current income taxes payable

13,743

8,357

75,153

Unredeemed gift card liability

137,021

155,848

106,425

Other current liabilities

24,286

23,598

17,810

Total current liabilities

981,354

883,178

763,309

Non-current lease liabilities

644,734

632,590

632,646

Non-current income taxes payable

38,073

43,150

43,150

Deferred income tax liability

60,010

58,755

46,901

Other non-current liabilities

9,761

8,976

6,919

Stockholders’ equity

2,671,166

2,558,566

2,001,102

Total liabilities and stockholders’ equity

$

4,405,098

$

4,185,215

$

3,494,027

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lululemon athletica inc.
Condensed Consolidated Statements of Cash Flows
Unaudited; Expressed in thousands

First Two Quarters

2021

2020

Cash flows from operating activities

Net income

$

353,030

$

115,433

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

146,742

(55,371)

Net cash provided by operating activities

499,772

60,062

Net cash used in investing activities

(201,493)

(545,323)

Net cash used in financing activities

(290,767)

(82,157)

Effect of foreign currency exchange rate changes on cash

12,012

(3,089)

Increase (decrease) in cash and cash equivalents

19,524

(570,507)

Cash and cash equivalents, beginning of period

1,150,517

1,093,505

Cash and cash equivalents, end of period

$

1,170,041

$

522,998

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 second quarter of 2021 compared to the second quarter of 2020.

Net Revenue

Direct to
Consumer Net
Revenue

Change

61

%

8

%

Adjustments due to foreign currency exchange rate changes

(5)

(4)

Change in constant dollars

56

%

4

%

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 September 8, 2021 for further information on these adjustments.

Second Quarter 2021

Income from
Operations

Operating
Margin

Income Tax
Expense

Effective Tax
Rate

Net Income

Diluted
Earnings Per
Share

GAAP results

$

291,031

20.1

%

$

83,053

28.5

%

$

208,074

$

1.59

Transaction and integration costs

1,035

0.1

1,035

0.01

Acquisition-related compensation

7,108

0.4

7,108

0.05

Tax effect of the above

434

(0.6)

(434)

Adjusted results (non-GAAP)

$

299,174

20.6

%

$

83,487

27.9

%

$

215,783

$

1.65

First Two Quarters 2021

Income from
Operations

Operating
Margin

Income Tax
Expense

Effective Tax
Rate

Net Income

Diluted
Earnings Per
Share

GAAP results

$

484,852

18.1

%

$

132,145

27.2

%

$

353,030

$

2.70

Transaction and integration costs

1,531

0.1

1,531

0.01

Acquisition-related compensation

14,276

0.5

14,276

0.11

Tax effect of the above

806

(0.7)

(806)

(0.01)

Adjusted results (non-GAAP)

$

500,659

18.7

%

$

132,951

26.5

%

$

368,031

$

2.81

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Second Quarter 2020

Income from
Operations

Operating
Margin

Income Tax
Expense

Effective Tax
Rate

Net Income

Diluted
Earnings Per
Share

GAAP results

$

124,409

13.8

%

$

37,264

30.0

%

$

86,801

$

0.66

Transaction and integration costs

7,201

0.8

7,201

0.06

Gain on existing investment

(782)

(0.1)

(782)

(0.01)

Acquisition-related compensation

5,045

0.5

5,045

0.04

Tax effect of the above

1,967

(1.1)

(1,967)

(0.01)

Adjusted results (non-GAAP)

$

135,873

15.0

%

$

39,231

28.9

%

$

96,298

$

0.74

First Two Quarters 2020

Income from
Operations

Operating
Margin

Income Tax
Expense

Effective Tax
Rate

Net Income

Diluted
Earnings Per
Share

GAAP results

$

157,160

10.1

%

$

42,557

26.9

%

$

115,433

$

0.88

Transaction and integration costs

9,246

0.6

9,246

0.07

Gain on existing investment

(782)

(0.1)

(782)

(0.01)

Acquisition-related compensation

5,045

0.4

5,045

0.04

Tax effect of the above

1,967

(0.9)

(1,967)

(0.01)

Adjusted results (non-GAAP)

$

170,669

11.0

%

$

44,524

26.0

%

$

126,975

$

0.97

Expected adjusted earnings per share

Third Quarter
Fiscal 2021

Fiscal 2021

Expected diluted earnings per share range

$1.28 to $1.33

$7.16 to $7.26

MIRROR integration and acquisition-related costs, net of tax

$0.05

$0.22

Expected adjusted earnings per share range (non-GAAP)

$1.33 to $1.38

$7.38 to $7.48

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

3rd Quarter 2020

506

11

2

515

4th Quarter 2020

515

8

2

521

1st Quarter 2021

521

3

1

523

2nd Quarter 2021

523

11

534

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

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

2nd Quarter 2021

1,862

43

1,905

__________

1Company-operated store count and square footage summary excludes retail locations operated by third parties under license and supply arrangements.
2Gross 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210908006037/en/

Contacts

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

Media Contact:
lululemon athletica inc.
Erin Hankinson
1-604-732-6124
or
Brunswick Group
Eleanor French
1-415-671-7676

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