Lululemon Second Quarter Profits Surpass Estimates As Sales Strength Continues
Lululemon Athletica Inc. reported second quarter earnings and sales well above Wall Street targets. Sales grew 61% year-over-year and 28% on a two-year compound annual growth rate.
Calvin McDonald, CEO, said, “Our second quarter results demonstrate the continued momentum of the business and how well we are delivering on our Power of Three growth plan and Impact Agenda commitments. We have launched exciting new products, experienced strength in all channels and geographies, and announced new partnerships that will allow us to become a leader in product sustainability. I am inspired every day by our teams around the world for their enthusiasm, agility and continued commitment to the brand.
The fiscal year ending January 30, 2022 is called “2021” and the fiscal year ending January 31, 2021 is called “2020”. The adjusted non-GAAP financial measures below exclude certain costs incurred in connection with the Mirror acquisition and associated tax effects.
For the second quarter of 2021, compared to the second quarter of 2020:
- Net sales increased 61% to $ 1.5 billion. The results were well above Wall Street’s consensus estimate of $ 1.33 billion.
- In constant dollars, net sales increased 56%.
- Corporate store net sales increased 142 percent to $ 695.1 million;
- DTC’s net revenue increased 8% to $ 597.4 million. In constant dollars, DTC’s net sales increased 4%; and
- Net sales increased 63% in North America and 49% internationally.
- DTC’s net revenue represented 41.2% of total net revenue compared to 61.4% for the second quarter of 2020.
- Gross profit rose 72 percent to $ 842.7 million, and gross margin increased 390 basis points to 58.1 percent.
- Operating profit increased 134% to $ 291.0 million.
- Adjusted operating income increased 120% to $ 299.2 million.
- The operating margin increased 630 basis points to 20.1%. Adjusted operating margin increased 560 basis points to 20.6%.
- The income tax expense increased 123 percent to $ 83.1 million. The effective tax rate for the second quarter of 2021 was 28.5% versus 30.0% for the second quarter of 2020. The adjusted effective tax rate was 27.9% for the second quarter of 2021 versus 28.9 % for the second quarter of 2020.
- Diluted earnings per share was $ 1.59 versus $ 0.66 in the second quarter of 2020. Adjusted diluted earnings per share was $ 1.65 versus $ 0.74 in the second quarter of 2020. Results were well above Wall Street consensus estimate of $ 1.18.
- 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 corporate stores during the second quarter, ending with 534 stores.
For the second quarter of 2021, compared to the second quarter of 2019:
- Net sales increased $ 567.3 million, or 64%, representing a two-year compound annual growth rate of 28%.
- Gross margin increased 310 basis points.
- The operating margin increased by 110 basis points. Adjusted operating margin increased by 160 basis points.
- Diluted earnings per share was $ 1.59, compared to $ 0.96 in the second quarter of 2019. Adjusted diluted earnings per share was $ 1.65 in the second quarter of 2021.
Meghan Frank, CFO, said: “Our second quarter performance was driven by a strong response to our product offering, improved productivity in our stores and continued strength in e-commerce. As we continue to navigate the COVID-19 environment, including supply chain headwinds, I am excited about our momentum heading into the second half of the year and excited to be able to increase our forecast. I too would like to thank teams around the world for enabling our strong financial performance. “
Highlights of the balance sheet
The company ended the second quarter of 2021 with $ 1.2 billion in cash and cash equivalents and the capacity of its committed revolving credit facilities was $ 397.2 million. Inventories at the end of the second quarter of 2021 were up 17% to $ 789.8 million, from $ 672.8 million at the end of the second quarter of 2020.
For the third quarter of 2021, Lululemon said he expects net sales to be between $ 1.400 billion and $ 1.430 billion. Diluted earnings per share should be between $ 1.28 and $ 1.33 for the quarter and diluted adjusted earnings per share should be between $ 1.33 and $ 1.38.
For 2021, Lululemon said he expects net income to be between $ 6.190 billion and $ 6.260 billion. Diluted earnings per share should be between $ 7.16 and $ 7.26 for the year and diluted adjusted earnings per share should be between $ 7.38 and $ 7.48.
Forecasts do not reflect potential future share buybacks in the company.
Photo courtesy of Lululemon