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Table of Contents

• a. Key Points

• b. Demand

• c. Profits & Margins

• d. Balance Sheet

• e. Guidance & Valuation

• f. Call & Release

• g. Take

a. Key Points

• Solid quarter. 

• Slightly underwhelming guidance.

• New inventory is working, but macro is fragile – just like for the rest of retail/apparel.

Please note that Lululemon raised quarterly guidance in January with only a few weeks left in the period.

b. Demand

• Lululemon beat revenue estimates by 0.8% and beat its updated guidance by 1.1%.

  • Overall revenue growth excluding the extra week in the quarter was 8% Y/Y and 9% on a foreign exchange neutral (FXN) basis.

• In the Americas, excluding the extra week in the quarter, revenue rose by 2% Y/Y. FXN revenue rose by 3% Y/Y vs. 2% FXN Y/Y growth last quarter.

  • Comparable store sales were flat Y/Y in the Americas.

  • USA revenue rose by 1% Y/Y vs. 0% Y/Y growth last quarter; Canadian revenue rose by 11% Y/Y.

• In China, revenue rose by 38% excluding the extra week. FXN revenue rose by 39% Y/Y vs. 36% FXN Y/Y growth last quarter.

  • Comparable store sales rose 26% Y/Y (27% FXN).

• In the Rest of World (RoW) revenue rose by 30% excluding the extra week. FXN revenue rose by 33% Y/Y vs. 23% FXN Y/Y growth last quarter.

  • Comparable store sales rose by 14% (17% FXN).

• Men’s revenue rose by 12% Y/Y vs. 9% Y/Y last quarter; women’s revenue rose by 6% Y/Y vs. 8% Y/Y growth last quarter; accessories & other revenue rose by 9% Y/Y vs. 8% Y/Y growth last quarter.

c. Profits & Margins

• Beat 59.7% GPM estimates & beat identical guidance by 70 basis points (bps; 1 basis point = 0.01%) each.

  • GPM expansion was based on 160 bps of product margin expansion thanks to lower product costs, lower markdowns and lower inventory shrink (less theft & defects). That was offset by a 30 bps FX headwind and higher freight costs.

• Beat EBIT estimates by 4.2% & beat guidance by 4.4%.

  • Selling, General and Administrative (SG&A) costs were 31.5% of revenue vs. 30.9% Y/Y. The deleveraging was due to corporate items, as well as depreciation and amortization (the effect of fulfillment center investments).

• Beat $5.87 EPS estimates by $0.27 & beat guidance by $0.31.

d. Balance Sheet

• $2 billion in cash & equivalents. 

• $394 million in untapped credit revolver capacity.

• No traditional debt.

• Inventory rose 9% Y/Y.

• Diluted share count fell by 3.7% Y/Y. It has $1.3 billion left on its current buyback program.

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