lululemon athletica inc. Announces Third Quarter Fiscal 2023 Results, Board of Directors Authorizes $1.0 Billion Stock Repurchase Program

Rhea-AI Summary

lululemon athletica inc. (NASDAQ:LULU) reported a 19% increase in revenue to $2.2 billion in the third quarter of fiscal 2023. Comparable sales increased by 13%, or 14% on a constant dollar basis. GAAP EPS was $1.96, with adjusted EPS of $2.53. The company's net revenue increased 12% in North America and 49% internationally. Direct to consumer net revenue represented 41% of total net revenue, with a gross margin of 57.0%. The company opened 14 net new company-operated stores during the quarter, ending with 686 stores. The board of directors approved a stock repurchase program for up to $1.0 billion of the Company's common shares. For the fourth quarter of 2023, the Company expects net revenue to be in the range of $3.135 billion to $3.170 billion, representing growth of 13% to 14%. Diluted earnings per share are expected to be in the range of $4.85 to $4.93 for the quarter. For 2023, the Company expects net revenue to be in the range of $9.549 billion to $9.584 billion, representing growth of 18%. Diluted earnings per share are expected to be in the range of $11.77 to $11.85 for the year, and excluding certain inventory provisions, asset impairments, and restructuring costs recognized in relation to lululemon Studio, and their related tax effects, adjusted diluted earnings per share are expected to be in the range of $12.34 to $12.42.

Positive

• 19% increase in revenue to $2.2 billion
• Gross profit increased 21% to $1.3 billion
• Company opened 14 net new company-operated stores during the quarter
• Board of directors approved a stock repurchase program for up to $1.0 billion of the Company's common shares
• Company expects net revenue to grow by 13% to 14% for the fourth quarter of 2023
• Company expects net revenue to grow by 18% for 2023

Negative

• None.

Revenue increased 19% to $2.2 billion

Comparable sales increased 13%, or increased 14% on a constant dollar basis

GAAP EPS of $1.96, Adjusted EPS of $2.53

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

Calvin McDonald, Chief Executive Officer, stated: "This was another strong quarter for lululemon as our innovative product offerings and community activations continued to powerfully resonate with our guests globally. As we enter the holiday season, we are pleased with our early performance and are well-positioned to deliver for our guests in the fourth quarter. I am energized by the significant opportunities ahead, and would like to thank our incredible teams around the world for their continued passion and commitment to our brand."

The adjusted non-GAAP financial measures below exclude certain inventory provisions, asset impairments, and restructuring costs recognized in relation to lululemon Studio, and the related income tax effects of these items.

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

• Net revenue increased 19% to $2.2 billion.
  • Net revenue increased 12% in North America, and increased 49% internationally.
• Total comparable sales increased 13%, or 14% on a constant dollar basis.
  • Comparable store sales increased 9%.
  • Direct to consumer net revenue increased 18%, or 19% on a constant dollar basis.
• Direct to consumer net revenue represented 41% of total net revenue compared to 41% for the third quarter of 2022.
• Gross profit increased 21% to $1.3 billion. Adjusted gross profit increased 23% to $1.3 billion.
• Gross margin increased 110 basis points to 57.0%. Adjusted gross margin increased 220 basis points to 58.1%.
• Income from operations decreased 4% to $338.1 million. Adjusted income from operations increased 24% to $436.3 million.
• Operating margin decreased 370 basis points to 15.3%. Adjusted operating margin increased 80 basis points to 19.8%.
• Income tax expense increased 2% to $99.2 million. The effective tax rate for the third quarter of 2023 was 28.5% compared to 27.6% for the third quarter of 2022. The adjusted effective tax rate was 28.1% for the third quarter of 2023.
• The Company has entered into a partnership with Peloton Interactive, Inc. for the provision of digital fitness content and will no longer produce its own content for the lululemon Studio Mirror. While the Company will continue to service and support existing subscribers, it has ceased selling the Mirror hardware. The Company recognized post-tax asset impairment and other charges related to lululemon Studio totaling $72.1 million during the third quarter.
• Diluted earnings per share were $1.96 compared to $2.00 in the third quarter of 2022. Adjusted diluted earnings per share were $2.53 in the third quarter of 2023.
• The Company opened 14 net new company-operated stores during the third quarter, ending with 686 stores.

Meghan Frank, Chief Financial Officer, stated: "Our third quarter performance, which exceeded our expectations on the top- and bottom-line, reflects the ongoing strength of our business model and our teams' ability to successfully execute at a high level amid an uncertain macro environment. As we look to the end of our fiscal year and into 2024, we remain focused on driving long-term growth and creating value for all our stakeholders."

Stock Repurchase Program

During the third quarter of 2023, the Company repurchased 0.6 million shares of its own common stock at an average price of $380.88 per share for a cost of $210.8 million. As of October 29, 2023, the Company had $243.2 million of authorization remaining on its previously authorized stock repurchase program.

On November 29, 2023, the board of directors approved an additional stock repurchase program for up to $1.0 billion of the Company's common shares.

Balance Sheet Highlights

The Company ended the third quarter of 2023 with $1.1 billion in cash and cash equivalents and the capacity under its committed revolving credit facility was $393.4 million.

Inventories at the end of the third quarter of 2023 decreased 4% to $1.664 billion compared to $1.742 billion at the end of the third quarter of 2022.

2023 Outlook

For the fourth quarter of 2023, the Company expects net revenue to be in the range of $3.135 billion to $3.170 billion, representing growth of 13% to 14%. Diluted earnings per share are expected to be in the range of $4.85 to $4.93 for the quarter. This assumes a tax rate of approximately 30%.

For 2023, the Company expects net revenue to be in the range of $9.549 billion to $9.584 billion, representing growth of 18%. Diluted earnings per share are expected to be in the range of $11.77 to $11.85 for the year, and excluding certain inventory provisions, asset impairments, and restructuring costs recognized in relation to lululemon Studio, and their related tax effects, adjusted diluted earnings per share are expected to be in the range of $12.34 to $12.42. This assumes a tax rate of approximately 29.5%.

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 third quarter results is scheduled for today, December 7, 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 gross profit, gross margin, income from operations, operating margin, income tax expense, effective tax rates, net income, and diluted earnings per share exclude certain inventory provisions, asset impairments, and restructuring costs recognized in relation to lululemon Studio, the gain on disposal of assets for the sale of an administrative office building, and the related income tax effects of these items.

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 these items, it does not consider them to be normal operating expenses that are necessary to run the business, or impairments or disposal gains that are 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

		Third Quarter								First Three Quarters
		2023				2022				2023				2022
Net revenue		$	2,204,218			$	1,856,889			$	6,414,175			$	5,338,680
Costs of goods sold			947,554				818,037				2,708,195				2,373,959
Gross profit			1,256,664				1,038,852				3,705,980				2,964,721
As a percent of net revenue			57.0	%			55.9	%			57.8	%			55.5	%
Selling, general and administrative expenses			842,795				684,236				2,407,683				1,954,340
As a percent of net revenue			38.2	%			36.8	%			37.5	%			36.6	%
Impairment of assets and restructuring costs			74,501				—				74,501				—
Amortization of intangible assets			1,253				2,189				5,010				6,579
Gain on disposal of assets			—				—				—				(10,180	)
Income from operations			338,115				352,427				1,218,786				1,013,982
As a percent of net revenue			15.3	%			19.0	%			19.0	%			19.0	%
Other income (expense), net			9,842				331				25,229				454
Income before income tax expense			347,957				352,758				1,244,015				1,014,436
Income tax expense			99,243				97,288				363,293				279,447
Net income		$	248,714			$	255,470			$	880,722			$	734,989
Basic earnings per share		$	1.97			$	2.00			$	6.94			$	5.75
Diluted earnings per share		$	1.96			$	2.00			$	6.92			$	5.74
Basic weighted-average shares outstanding			126,460				127,511				126,892				127,736
Diluted weighted-average shares outstanding			126,770				127,820				127,218				128,089

lululemon athletica inc.

Condensed Consolidated Balance Sheets
Unaudited; Expressed in thousands

		October 29, 2023			January 29, 2023			October 30, 2022
ASSETS
Current assets
Cash and cash equivalents		$	1,091,138		$	1,154,867		$	352,624
Inventories			1,663,617			1,447,367			1,741,716
Prepaid and receivable income taxes			300,258			185,641			196,385
Other current assets			309,886			371,578			343,456
Total current assets			3,364,899			3,159,453			2,634,181
Property and equipment, net			1,413,918			1,269,614			1,122,490
Right-of-use lease assets			1,048,607			969,419			946,687
Goodwill and intangible assets, net			23,912			46,105			451,234
Deferred income taxes and other non-current assets			170,928			162,447			154,844
Total assets		$	6,022,264		$	5,607,038		$	5,309,436
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable		$	309,324		$	172,732		$	300,870
Accrued liabilities and other			392,949			399,223			357,365
Accrued compensation and related expenses			250,479			248,167			184,122
Current lease liabilities			217,138			207,972			188,110
Current income taxes payable			27,231			174,221			80,947
Unredeemed gift card liability			213,256			251,478			171,659
Other current liabilities			37,737			38,405			39,762
Total current liabilities			1,448,114			1,492,198			1,322,835
Non-current lease liabilities			950,954			862,362			850,373
Non-current income taxes payable			15,864			28,555			28,555
Deferred income tax liability			53,833			55,084			50,884
Other non-current liabilities			27,650			20,040			17,585
Stockholders' equity			3,525,849			3,148,799			3,039,204
Total liabilities and stockholders' equity		$	6,022,264		$	5,607,038		$	5,309,436

lululemon athletica inc.

Condensed Consolidated Statements of Cash Flows
Unaudited; Expressed in thousands

		First Three Quarters
		2023				2022
Cash flows from operating activities
Net income		$	880,722			$	734,989
Adjustments to reconcile net income to net cash provided by (used in) operating activities			31,344				(814,790	)
Net cash provided by (used in) operating activities			912,066				(79,801	)
Net cash used in investing activities			(445,325	)			(386,862	)
Net cash used in financing activities			(510,583	)			(399,428	)
Effect of foreign currency exchange rate changes on cash and cash equivalents			(19,887	)			(41,156	)
Increase (decrease) in cash and cash equivalents			(63,729	)			(907,247	)
Cash and cash equivalents, beginning of period			1,154,867				1,259,871
Cash and cash equivalents, end of period		$	1,091,138			$	352,624

lululemon athletica inc.

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

Constant dollar changes

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

		Net Revenue			Total Comparable Sales(1),(2)			Comparable Store Sales(2)			Direct to Consumer Net Revenue
Change		19	%		13	%		9	%		18	%
Adjustments due to foreign currency exchange rate changes		—			1			—			1
Change in constant dollars		19	%		14	%		9	%		19	%

__________________________
(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 2023 adjustments relate to certain inventory provisions, asset impairments, and restructuring costs recognized in relation to lululemon Studio and their related tax effects. The 2022 adjustments relate to the gain on sale of an administrative office building and its related tax effects. Please refer to Note 3. Impairment of Assets and Restructuring Costs and Note 4. 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 December 7, 2023 for further information on the nature of these amounts.

		Third Quarter 2023
		Gross Profit			Gross Margin			Income from Operations			Operating Margin			Income Tax Expense			Effective Tax Rate			Net Income				Diluted Earnings Per Share
GAAP results		$	1,256,664		57.0	%		$	338,115		15.3	%		$	99,243		28.5	%		$	248,714			$	1.96
lululemon Studio charges:
lululemon Studio obsolescence provision			23,709		1.1				23,709		1.1										23,709				0.19
Impairment of assets									44,186		2.0										44,186				0.35
Restructuring costs									30,315		1.4										30,315				0.24
Tax effect of the above															26,085		(0.4	)			(26,085	)			(0.21	)
			23,709		1.1				98,210		4.5				26,085		(0.4	)			72,125				0.57
Adjusted results (non-GAAP)		$	1,280,373		58.1	%		$	436,325		19.8	%		$	125,328		28.1	%		$	320,839			$	2.53

		First Three Quarters 2023
		Gross Profit			Gross Margin			Income from Operations			Operating Margin			Income Tax Expense			Effective Tax Rate			Net Income				Diluted Earnings Per Share
GAAP results		$	3,705,980		57.8	%		$	1,218,786		19.0	%		$	363,293		29.2	%		$	880,722			$	6.92
lululemon Studio charges:
lululemon Studio obsolescence provision			23,709		0.3				23,709		0.3										23,709				0.19
Impairment of assets									44,186		0.7										44,186				0.35
Restructuring costs									30,315		0.5										30,315				0.24
Tax effect of the above															26,085		(0.2	)			(26,085	)			(0.21	)
			23,709		0.3				98,210		1.5				26,085		(0.2	)			72,125				0.57
Adjusted results (non-GAAP)		$	3,729,689		58.1	%		$	1,316,996		20.5	%		$	389,378		29.0	%		$	952,847			$	7.49

		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

Expected adjusted earnings per share

		Fiscal 2023
Expected diluted earnings per share range		$11.77 to $11.85
Impairment of assets and restructuring costs, net of tax		0.57
Expected adjusted earnings per share range (non-GAAP)		$12.34 to $12.42

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
4th Quarter 2022		623		34		2		655
1st Quarter 2023		655		10		3		662
2nd Quarter 2023		662		12		2		672
3rd Quarter 2023		672		15		1		686

		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
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
3rd Quarter 2023		2,691		109		3		2,797

__________________________
(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.

 

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FAQ

What was lululemon athletica's revenue in the third quarter of fiscal 2023?

lululemon athletica reported a 19% increase in revenue to $2.2 billion in the third quarter of fiscal 2023.

What were lululemon athletica's earnings per share in the third quarter of fiscal 2023?

GAAP EPS was $1.96, with adjusted EPS of $2.53.

How many new stores did lululemon athletica open during the third quarter of fiscal 2023?

lululemon athletica opened 14 net new company-operated stores during the quarter, ending with 686 stores.

What is the outlook for lululemon athletica's net revenue for the fourth quarter of 2023?

For the fourth quarter of 2023, the Company expects net revenue to be in the range of $3.135 billion to $3.170 billion, representing growth of 13% to 14%.