Lululemon athletica inc. announces third quarter fiscal 2020 results
Vancouver, british columbia--(business wire)--lululemon athletica inc. (nasdaq:lulu) today announced financial results for the third quarter of fiscal 2020. calvin mcdonald, chief executive officer, stated: "our third quarter results demonstrate the strength of lululemon across channels and markets, both in north america and around the world. our product innovations, investments in the e-commerce business, and strategic acquisition of mirror position us well to serve our guests as their needs evolve across both physical and digital experiences." for the third quarter of fiscal 2020, compared to the third quarter of fiscal 2019 net revenue increased 22% to $1.1 billion. on a constant dollar basis, net revenue increased 21%. – net revenue increased 19% in north america, and increased 45% internationally. total comparable sales increased 19%, or increased 18% on a constant dollar basis. – direct to consumer net revenue increased 94%, or increased 93% on a constant dollar basis. – comparable store productivity was 83%, or 82% on a constant dollar basis, representing a comparable store sales decrease of 17%, or a decrease of 18% on a constant dollar basis. direct to consumer net revenue represented 42.8% of total net revenue compared to 26.9% for the third quarter of fiscal 2019. gross profit increased 24% to $627.4 million and gross margin increased 100 basis points to 56.1%. income from operations increased 17% to $204.9 million. adjusted income from operations increased 21% to $213.5 million. operating margin decreased 90 basis points to 18.3%. adjusted operating margin decreased 10 basis points to 19.1%. income tax expense increased 17% to $60.7 million. the effective tax rate for the third quarter of fiscal 2020 was 29.7% compared to 29.1% for the third quarter of fiscal 2019. the adjusted effective tax rate was 28.9% for the third quarter of fiscal 2020. diluted earnings per share were $1.10 compared to $0.96 in the third quarter of fiscal 2019. adjusted diluted earnings per share were $1.16 for the third quarter of fiscal 2020. the company opened nine net new company-operated stores during the quarter, ending with 515 stores. the summary above provides both gaap and adjusted non-gaap financial measures. the adjusted financial measures exclude certain costs incurred in connection with the acquisition of mirror, and the related tax effects. meghan frank, chief financial officer, stated: "our performance this quarter was driven by strong omni momentum, with notable strength in conversion and increased traffic to our e-commerce sites." frank continued, "we have planned the fourth quarter based on multiple performance scenarios and believe we are well positioned for the holiday season." balance sheet highlights the company ended the third quarter of fiscal 2020 with $481.6 million in cash and cash equivalents and the capacity under its committed revolving credit facilities was $697.3 million. inventories at the end of the third quarter of fiscal 2020 increased 23% to $771.0 million compared to $627.1 million at the end of the third quarter of fiscal 2019. share repurchase and cancellation of 364-day credit facility the company announced that on december 1, 2020, the board of directors approved an increase in its share repurchase authorization from $263.6 million to $500.0 million. the timing, pricing, and actual number of common shares to be repurchased will depend upon prevailing market conditions, applicable legal requirements, and other factors. the repurchase plan has no time limit. the company also announced that on december 4, 2020, it had given notice to terminate its 364-day unsecured revolving credit facility. the $300.0 million facility was due to mature on june 28, 2021 and will be terminated without penalty on december 11, 2020. the company continues to maintain its unsecured five-year revolving credit facility of $400.0 million which matures on june 6, 2023. covid-19 pandemic and fiscal 2020 outlook as a result of the covid-19 pandemic, all of the company's retail locations in north america, europe, and certain countries in asia pacific were temporarily closed during the first quarter of fiscal 2020. the company began reopening its retail locations in these markets during the second quarter of fiscal 2020 and almost all locations were open during the third quarter of fiscal 2020. subsequent to november 1, 2020, while almost all of the company's retail locations have remained open, it has experienced some temporary closures and is currently operating with tighter capacity restrictions in certain markets. due to the impact that covid-19 is having across the globe, and the rapid and continuous developments, the company is not providing detailed financial guidance for fiscal 2020 at this time. conference call information a conference call to discuss third quarter results is scheduled for today, december 10, 2020, 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. the acquisition-related compensation costs primarily relate to the acceleration of vesting of certain stock options upon acquisition, and to deferred consideration of $57.1 million in which is due to certain mirror employees subject to their continued employment through various vesting dates up to three years from the acquisition date. these individuals also receive employment compensation separate from the deferred amounts that is commensurate with the services they provide and which we consider to be normal operating expenses within selling, general and administrative expenses. 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; 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 and south east asia; its ability to safeguard against security breaches with respect to its information technology systems; any material disruption of its information systems; its ability to have technology-based systems function effectively and grow its e-commerce business globally; 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 quarter ended three quarters ended november 1, 2020 november 3, 2019 november 1, 2020 november 3, 2019 net revenue $ 1,117,426 $ 916,138 $ 2,672,330 $ 2,581,805 costs of goods sold 490,072 411,094 1,221,073 1,169,245 gross profit 627,354 505,044 1,451,257 1,412,560 as a percent of net revenue 56.1% 55.1% 54.3% 54.7% selling, general and administrative expenses 411,662 329,208 1,064,172 939,930 as a percent of net revenue 36.8% 35.9% 39.8% 36.4% amortization of intangible assets 2,241 7 2,965 7 acquisition-related expenses 8,531 — 22,040 — income from operations 204,920 175,829 362,080 472,623 as a percent of net revenue 18.3% 19.2% 13.5% 18.3% other income (expense), net (580) 1,925 250 6,154 income before income tax expense 204,340 177,754 362,330 478,777 income tax expense 60,697 51,772 103,254 131,202 net income $ 143,643 $ 125,982 $ 259,076 $ 347,575 basic earnings per share $ 1.10 $ 0.97 $ 1.99 $ 2.67 diluted earnings per share $ 1.10 $ 0.96 $ 1.98 $ 2.65 basic weighted-average shares outstanding 130,318 130,282 130,271 130,420 diluted weighted-average shares outstanding 130,924 130,805 130,842 130,975 lululemon athletica inc. condensed consolidated balance sheets unaudited; expressed in thousands november 1, 2020 february 2, 2020 november 3, 2019 assets current assets cash and cash equivalents $ 481,581 $ 1,093,505 $ 586,153 inventories 770,990 518,513 627,102 prepaid and receivable income taxes 168,272 85,159 126,715 other current assets 179,970 110,761 111,706 total current assets 1,600,813 1,807,938 1,451,676 property and equipment, net 719,880 671,693 656,372 right-of-use lease assets 714,086 689,664 652,492 goodwill and intangible assets, net 468,908 24,423 24,478 deferred income taxes and other non-current assets 124,233 87,636 70,126 total assets $ 3,627,920 $ 3,281,354 $ 2,855,144 liabilities and stockholders' equity current liabilities accounts payable $ 160,779 $ 79,997 $ 116,281 accrued inventory liabilities 10,654 6,344 10,074 other accrued liabilities 190,366 112,641 121,144 accrued compensation and related expenses 96,527 133,688 98,442 current lease liabilities 138,082 128,497 131,385 current income taxes payable 5,818 26,436 12,351 unredeemed gift card liability 104,760 120,413 75,025 other current liabilities 23,892 12,402 10,067 total current liabilities 730,878 620,418 574,769 non-current lease liabilities 635,386 611,464 563,925 non-current income taxes payable 43,150 48,226 48,226 deferred income tax liability 47,199 43,432 14,190 other non-current liabilities 8,354 5,596 5,298 stockholders' equity 2,162,953 1,952,218 1,648,736 total liabilities and stockholders' equity $ 3,627,920 $ 3,281,354 $ 2,855,144 lululemon athletica inc. condensed consolidated statements of cash flows unaudited; expressed in thousands three quarters ended november 1, 2020 november 3, 2019 cash flows from operating activities net income $ 259,076 $ 347,575 adjustments to reconcile net income to net cash provided by operating activities (173,672) (252,469) net cash provided by operating activities 85,404 95,106 net cash used in investing activities (616,544) (212,475) net cash used in financing activities (81,404) (179,555) effect of exchange rate changes on cash 620 1,757 decrease in cash and cash equivalents (611,924) (295,167) cash and cash equivalents, beginning of period 1,093,505 881,320 cash and cash equivalents, end of period $ 481,581 $ 586,153 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 compared to the corresponding period in the prior year. quarter ended november 1, 2020 net revenue total comparable sales1,2 comparable store sales2 direct to consumer net revenue change 22 % 19 % (17) % 94 % adjustments due to foreign exchange rate changes (1) (1) (1) (1) change in constant dollars 21 % 18 % (18) % 93 % __________ constant dollar changes in comparable store productivity the below table shows comparable store sales1 as a percentage of the net revenue generated from these company-operated stores in the corresponding period of the prior year. quarter ended november 1, 2020 comparable store productivity 83 % adjustments due to foreign exchange rate changes (1) comparable store productivity in constant dollars 82 % __________ 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 to the unaudited consolidated financial statements included in item 1 of part i of our report on form 10-q to be filed with the sec on or about december 10, 2020 for further information on these adjustments. quarter ended november 1, 2020 income from operations operating margin income tax expense effective tax rate net income diluted earnings per share gaap results $ 204,920 18.3 % $ 60,697 29.7 % $ 143,643 $ 1.10 transaction and integration costs 1,017 0.1 1,017 0.01 acquisition-related compensation 7,514 0.7 7,514 0.06 tax effect of the above 896 (0.8) (896) (0.01) adjusted results (non-gaap) $ 213,451 19.1 % $ 61,593 28.9 % $ 151,278 $ 1.16 three quarters ended november 1, 2020 income from operations operating margin income tax expense effective tax rate net income diluted earnings per share gaap results $ 362,080 13.5 % $ 103,254 28.5 % $ 259,076 $ 1.98 transaction and integration costs 10,263 0.4 10,263 0.08 gain on existing investment (782) — (782) (0.01) acquisition-related compensation 12,559 0.5 12,559 0.10 tax effect of the above 2,862 (0.9) (2,862) (0.02) adjusted results (non-gaap) $ 384,120 14.4 % $ 106,117 27.6 % $ 278,254 $ 2.13 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 4th quarter 2019 479 16 4 491 1st quarter 2020 491 4 6 489 2nd quarter 2020 489 17 — 506 3rd quarter 2020 506 11 2 515 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 4th quarter 2019 1,604 87 11 1,680 1st quarter 2020 1,680 24 12 1,692 2nd quarter 2020 1,692 65 — 1,757 3rd quarter 2020 1,757 54 3 1,808 __________ 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.
