Lululemon athletica inc. announces third quarter fiscal 2022 results
Vancouver, british columbia--(business wire)--lululemon athletica inc. (nasdaq:lulu) today announced financial results for the third quarter of fiscal 2022. calvin mcdonald, chief executive officer, stated: "in the third quarter, we continued to deliver strong and balanced results across the business, demonstrating the significant potential for our brand. our ongoing momentum is a testament to our innovative products, deep community relationships, and the hard work and dedication of our talented teams around the world. we are pleased with our early holiday season performance and look forward to all that’s ahead for lululemon as we continue to deliver on our power of three ×2 growth plan." the adjusted non-gaap financial measures below exclude certain costs incurred in connection with the acquisition of mirror in fiscal 2021, and the related tax effects. the fiscal year ending january 29, 2023 is referred to as "2022", the fiscal year ended january 30, 2022 is referred to as "2021", and the fiscal year ended february 2, 2020 is referred to as "2019". for the third quarter of 2022, compared to the third quarter of 2021: net revenue increased 28% to $1.9 billion, or increased 31% on a constant dollar basis. net revenue increased 26% in north america, and increased 41% internationally. net revenue increased 26% in north america, and increased 41% internationally. total comparable sales increased 22%, or 25% on a constant dollar basis. comparable store sales increased 14%, or 17% on a constant dollar basis. direct to consumer net revenue increased 31%, or 34% on a constant dollar basis. comparable store sales increased 14%, or 17% on a constant dollar basis. direct to consumer net revenue increased 31%, or 34% on a constant dollar basis. direct to consumer net revenue represented 41% of total net revenue compared to 40% for the third quarter of 2021. gross profit increased 25% to $1.0 billion and gross margin decreased 130 basis points to 55.9%. income from operations increased 37% to $352.4 million. adjusted income from operations increased 25%. operating margin increased 120 basis points to 19.0%. adjusted operating margin decreased 40 basis points. income tax expense increased 39% to $97.3 million. the effective tax rate for the third quarter of 2022 was 27.6% compared to 27.2% for the third quarter of 2021. the adjusted effective tax rate was 25.1% for the third quarter of 2021. diluted earnings per share were $2.00 compared to $1.44 in the third quarter of 2021. adjusted diluted earnings per share were $1.62 in the third quarter of 2021. the company repurchased 54.6 thousand shares of its own common stock at an average price of $311.21 per share for a total cost of $17.0 million. the company opened 23 net new company-operated stores during the third quarter, ending with 623 stores. for the third quarter of 2022, compared to the third quarter of 2019: net revenue increased by $940.8 million, or 103%, representing a three-year compound annual growth rate of 27%. gross margin increased 80 basis points. operating margin decreased 20 basis points. diluted earnings per share were $2.00 compared to $0.96 in the third quarter of 2019. meghan frank, chief financial officer, stated: "we are proud to have delivered another quarter of strong sales and earnings growth, despite an operating environment that remains dynamic. these results illustrate the strength and differentiation of our omni operating model and position us well to deliver ongoing value for our stakeholders. we look forward to a strong finish to our fiscal year." balance sheet highlights the company ended the third quarter of 2022 with $352.6 million in cash and cash equivalents and the capacity under its committed revolving credit facility was $394.8 million. inventories at the end of the third quarter of 2022 increased 85% to $1.7 billion compared to $0.9 billion at the end of the third quarter of 2021. on a unit basis inventory increased 80%, representing a three-year compound annual growth rate of 38%, which is inclusive of three-percentage points for in-transit inventories. the company believes its inventories are well positioned to support its expected revenue growth in the fourth quarter. 2022 outlook for the fourth quarter of 2022, the company expects net revenue to be in the range of $2.605 billion to $2.655 billion, representing a three-year compound annual growth rate of approximately 24%. diluted earnings per share are expected to be in the range of $4.20 to $4.30 for the quarter. for 2022, the company expects net revenue to be in the range of $7.944 billion to $7.994 billion, representing a three-year compound annual growth rate of approximately 26%. diluted earnings per share are expected to be in the range of $9.94 to $10.04 for the year and, excluding the gain on the sale of an administrative office building, adjusted diluted earnings per share are expected to be in the range of $9.87 to $9.97. 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 and further resurgences in covid-19. 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 x2 the company's power of three x2 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 third quarter results is scheduled for today, december 8, 2022, 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 items related to the sale of an administrative office building and the mirror acquisition. the company excludes the gain on disposal of assets and its income tax effect for the sale of an administrative office building in 2022. it excludes the transaction and integration costs related to the mirror acquisition and certain acquisition-related compensation costs, and the related income tax effects of these items in 2021. the acquisition-related compensation costs include accelerated expenses related to the transition of the former mirror chief executive officer to an advisory role. 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 more consistent comparison to its historical financial information. further, due to the finite and discrete nature of these items, it does not consider them to be normal operating expenses that are necessary to operate the business. 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; the company's ability to achieve the synergies and benefits sought through the acquisition of mirror (now known as lululemon studio); the ability of lululemon studio to generate near and long term expected cash flows which if not achieved could result in a material impairment of goodwill or other assets; 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; the current covid-19 coronavirus pandemic and related government, private sector, and individual consumer responsive actions; 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 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. condensed consolidated statements of operations unaudited; expressed in thousands, except per share amounts third quarter first three quarters 2022 2021 2022 2021 net revenue $ 1,856,889 $ 1,450,421 $ 5,338,680 $ 4,127,504 costs of goods sold 818,037 621,028 2,373,959 1,755,111 gross profit 1,038,852 829,393 2,964,721 2,372,393 as a percent of net revenue 55.9 % 57.2 % 55.5 % 57.5 % selling, general and administrative expenses 684,236 545,124 1,954,340 1,583,075 as a percent of net revenue 36.8 % 37.6 % 36.6 % 38.4 % amortization of intangible assets 2,189 2,195 6,579 6,585 acquisition-related expenses — 24,127 — 39,934 gain on disposal of assets — — (10,180 ) — income from operations 352,427 257,947 1,013,982 742,799 as a percent of net revenue 19.0 % 17.8 % 19.0 % 18.0 % other income (expense), net 331 15 454 338 income before income tax expense 352,758 257,962 1,014,436 743,137 income tax expense 97,288 70,174 279,447 202,319 net income $ 255,470 $ 187,788 $ 734,989 $ 540,818 basic earnings per share $ 2.00 $ 1.45 $ 5.75 $ 4.16 diluted earnings per share $ 2.00 $ 1.44 $ 5.74 $ 4.14 basic weighted-average shares outstanding 127,511 129,684 127,736 130,019 diluted weighted-average shares outstanding 127,820 130,189 128,089 130,557 lululemon athletica inc. condensed consolidated balance sheets unaudited; expressed in thousands october 30, 2022 january 30, 2022 october 31, 2021 assets current assets cash and cash equivalents $ 352,624 $ 1,259,871 $ 993,591 inventories 1,741,716 966,481 943,900 prepaid and receivable income taxes 196,385 118,928 140,582 other current assets 343,456 269,573 233,221 total current assets 2,634,181 2,614,853 2,311,294 property and equipment, net 1,122,490 927,710 876,489 right-of-use lease assets 946,687 803,543 789,381 goodwill and intangible assets, net 451,234 458,179 460,559 deferred income taxes and other non-current assets 154,844 138,193 134,284 total assets $ 5,309,436 $ 4,942,478 $ 4,572,007 liabilities and stockholders' equity current liabilities accounts payable $ 300,870 $ 289,728 $ 227,067 accrued liabilities and other 357,365 330,800 324,432 accrued compensation and related expenses 184,122 204,921 181,863 current lease liabilities 188,110 188,996 175,445 current income taxes payable 80,947 133,852 43,199 unredeemed gift card liability 171,659 208,195 137,656 other current liabilities 39,762 48,842 28,358 total current liabilities 1,322,835 1,405,334 1,118,020 non-current lease liabilities 850,373 692,056 684,460 non-current income taxes payable 28,555 38,074 38,073 deferred income tax liability 50,884 53,352 60,374 other non-current liabilities 17,585 13,616 12,625 stockholders' equity 3,039,204 2,740,046 2,658,455 total liabilities and stockholders' equity $ 5,309,436 $ 4,942,478 $ 4,572,007 lululemon athletica inc. condensed consolidated statements of cash flows unaudited; expressed in thousands first three quarters 2022 2021 cash flows from operating activities net income $ 734,989 $ 540,818 adjustments to reconcile net income to net cash provided by (used in) operating activities (814,790 ) 117,306 net cash provided by (used in) operating activities (79,801 ) 658,124 net cash used in investing activities (386,862 ) (313,438 ) net cash used in financing activities (399,428 ) (523,197 ) effect of foreign currency exchange rate changes on cash (41,156 ) 21,585 increase (decrease) in cash and cash equivalents (907,247 ) (156,926 ) cash and cash equivalents, beginning of period 1,259,871 1,150,517 cash and cash equivalents, end of period $ 352,624 $ 993,591 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 third quarter of 2022 compared to the third quarter of 2021. net revenue total comparable sales1,2 comparable store sales2 direct to consumer net revenue change 28 % 22 % 14 % 31 % adjustments due to foreign currency exchange rate changes 3 3 3 3 change in constant dollars 31 % 25 % 17 % 34 % (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. the 2021 adjustments relate to the acquisition of mirror, including accelerated compensation expense related to the transition of the former mirror chief executive officer to a temporary advisory role with the company, and its related tax effects. please refer to note 4. gain on disposal of assets and note 3. acquisition-related expenses 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 december 8, 2022 for further information on these adjustments. first three quarters 2022 income from operations operating margin income tax expense effective tax rate net income diluted earnings per share gaap results $ 1,013,982 19.0 % $ 279,447 27.5 % $ 734,989 $ 5.74 gain on disposal of assets (10,180 ) (0.2 ) (10,180 ) (0.08 ) tax effect of the above (1,661 ) 0.2 1,661 0.01 adjusted results (non-gaap) $ 1,003,802 18.8 % $ 277,786 27.7 % $ 726,470 $ 5.67 third quarter 2021 income from operations operating margin income tax expense effective tax rate net income diluted earnings per share gaap results $ 257,947 17.8 % $ 70,174 27.2 % $ 187,788 $ 1.44 transaction and integration costs 328 — 328 — acquisition-related compensation 23,799 1.6 23,799 0.18 tax effect of the above 611 (2.1 ) (611 ) — adjusted results (non-gaap) $ 282,074 19.4 % $ 70,785 25.1 % $ 211,304 $ 1.62 first three quarters 2021 income from operations operating margin income tax expense effective tax rate net income diluted earnings per share gaap results $ 742,799 18.0 % $ 202,319 27.2 % $ 540,818 $ 4.14 transaction and integration costs 1,859 — 1,859 0.02 acquisition-related compensation 38,075 1.0 38,075 0.29 tax effect of the above 1,417 (1.2 ) (1,417 ) (0.01 ) adjusted results (non-gaap) $ 782,733 19.0 % $ 203,736 26.0 % $ 579,335 $ 4.44 expected adjusted earnings per share fiscal 2022 expected diluted earnings per share range $9.94 to $10.04 gain on disposal of assets, net of tax (0.07) expected adjusted earnings per share range (non-gaap) $9.87 to $9.97 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 2021 552 23 1 574 1st quarter 2022 574 6 1 579 2nd quarter 2022 579 22 1 600 3rd quarter 2022 600 25 2 623 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 2021 2,002 126 3 2,125 1st quarter 2022 2,125 32 2 2,155 2nd quarter 2022 2,155 105 2 2,258 3rd quarter 2022 2,258 139 7 2,390 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.
