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lululemon (LULU) Tops on Q2 Earnings & Revenues, Ups View
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lululemon athletica inc. (LULU - Free Report) reported strong second-quarter fiscal 2022 results, with revenues and earnings surpassing the Zacks Consensus Estimate and improving year over year. The results were driven by the continued business momentum, which led to robust sales and an improved operating margin.
lululemon’s fiscal second-quarter adjusted earnings of $2.20 per share beat the Zacks Consensus Estimate of $1.86 and our estimate of $1.82. The figure also reflected an increase of 33.3% from adjusted earnings of $1.65 in the year-ago quarter.
On a GAAP basis, earnings per share of $2.26 for second-quarter fiscal 2022 improved from $1.59 reported in second-quarter fiscal 2021 and 96 cents in second-quarter 2019. The company’s earnings improved 32% on a three-year compounded annual growth rate (CAGR) basis.
Shares of lululemon rose 9.8% in the after-hours trading session on Sep 1, backed by the strong results and a raised view. The Zacks Rank #3 (Hold) company’s shares have lost 2.1% in the past three months compared with the industry’s decline of 8%.
Image Source: Zacks Investment Research
The Vancouver, Canada-based company’s quarterly revenues advanced 28.8% year over year to $1,868.3 million and surpassed the Zacks Consensus Estimate of $1,770 million and our estimate of 1,772.2 million. Revenue growth was mainly driven by the strong momentum in its business, driven by a favorable response to its products. The company’s net revenues grew 28% in North America and 35% internationally. Compared with the second quarter of fiscal 2019, net revenues improved 112%, witnessing a three-year CAGR of 28%.
The company’s total comparable sales rose 23% year over year and 25% on a constant-dollar basis. Comps were driven by robust traffic trends in both stores and e-commerce, with more than 30% traffic growth at stores and more than 40% growth in e-commerce. Transactions by existing guests increased in the high teens, while transactions by new guests were up more than 20%. On a three-year CAGR basis, traffic was up 8% in stores and more than 40% in e-commerce.
Direct-to-consumer net revenues climbed 30% (up 32% on a constant-dollar basis). Direct-to-consumer net revenues accounted for 42% of the company’s total net revenues compared with 41% in the second quarter of fiscal 2021. The company’s e-commerce business delivered an impressive performance, with revenues increasing 53% on a three-year CAGR basis.
In the company’s store channel, sales increased 30% year over year and 16% on a three-year CAGR basis. Comparable sales in stores increased 18%. Management highlighted that productivity was higher in second-quarter fiscal 2022 than the 2019 level. The company had 98% of stores open in the fiscal second quarter. It currently has 99% of its stores open.
lululemon athletica inc. Price, Consensus and EPS Surprise
The gross profit improved 25% year over year to $1,055.5 million. However, the gross margin contracted 160 basis points (bps) to 56.5%, thanks to a 150-bps decline in the product margin. The product margin in the fiscal second quarter was impacted by a 130-bps increase in air freight due to the ongoing supply-chain headwinds, a 30-bps impact of higher markdowns and a 40-bps deleverage from foreign currency. This was partly negated by a 30-bps leverage on fixed costs, driven by occupancy and depreciation. The gross margin expanded 150 bps from second-quarter fiscal 2019.
SG&A expenses of $662.3 million increased 22.4% from the year-ago quarter. SG&A expenses, as a percentage of net revenues, were 35.4%, down 190 bps from 37.3% reported in the prior-year quarter, owing to the leverage in store and digital channels, and slightly favorable currency rates. This was somewhat offset by higher investments in corporate SG&A and depreciation.
Income from operations jumped 37.9% to $401.2 million from $201.5 million reported in the prior-year quarter. The operating margin expanded 140 bps to 21.5% from the prior-year quarter’s 20.1% and 250 bps from second-quarter fiscal 2019.
Adjusted income from operations rose 31% year over year in the second quarter of fiscal 2022, while the adjusted operating margin expanded 30 bps. The adjusted operating margin increased 190 bps from second-quarter fiscal 2019.
Store Update
In the fiscal second quarter, the company opened 21 net new stores and completed six co-located optimizations. As of Jun 30, 2022, it operated 600 stores.
Management expects to open 25 net new company-operated stores in the third quarter of fiscal 2022. It anticipates opening approximately 75 net new company-operated stores in fiscal 2022 compared with 70 store openings mentioned earlier. The store openings in fiscal 2022 will likely include 45 stores in the international markets. The total store openings in fiscal 2022 will imply a square footage increase in the low 20% range.
Financials
lululemon exited the quarter with cash and cash equivalents of $498.8 million, and stockholders’ equity of $2,857.8 million. At the end of second-quarter fiscal 2022, the company had $394.8 million remaining under its committed revolving credit facility.
At the end of the fiscal second quarter, the company’s inventories grew 85% to $1,462.1 million. On a unit basis, inventory was up 64%, witnessing a three-year CAGR of 38%.
The company expects the inventory growth rate at the end of the fiscal third quarter to be slightly higher than the level witnessed at the end of the fiscal second quarter. At the end of the fiscal fourth quarter, the inventory growth rate is anticipated to moderate to 50-60%.
In second-quarter fiscal 2022, management repurchased 420,000 million shares at an average rate of $298 per share. As of Jun 30, 2022, the company had $830 million remaining under its recently authorized $1 billion share repurchase program.
Outlook
For the third quarter of fiscal 2022, management anticipates net revenues of $1.78-$1.805 billion, indicating 23-24% year-over-year growth and a 25% rise on a three-year CAGR basis. The company expects the fiscal third-quarter gross margin to be down 50-70 bps year over year.
Although the company assumes lower impacts of air freight on the gross margin in the fiscal third quarter, it expects the timing of supply-chain-related expenses and the normalized markdowns in the quarter compared with the prior-year quarter to hurt the results. lululemon anticipates a relatively flat SG&A expense rate for the fiscal third quarter. Adjusted earnings per share (EPS) are projected to be $1.90-$1.95 for the fiscal third quarter.
The company raised its guidance for fiscal 2022. lululemon anticipates net revenues of $7.865-$7.94 billion compared with the prior mentioned $7.61-$7.71 billion. The revised view represents a three-year CAGR of 26%. The sales view assumes e-commerce growth in the low- to mid-20s range relative to that reported in fiscal 2021, and compares with a high-teens to low-20s range expected earlier. The company’s revenue guidance suggests three-year CAGR growth of 26%, higher than the 3-year revenue CAGR of 19% leading up to fiscal 2020.
lululemon anticipates a gross margin decline of 100-130 bps for fiscal 2022 compared with a 100-150 bps decline mentioned earlier. The decline is expected to result from higher investments in the distribution center network and more normalized markdowns from the low levels witnessed in the prior year. The company estimates an effective tax rate of 28% for the fiscal third quarter.
For fiscal 2022, LULU expects the SG&A rate to leverage 100-130 bps year over year compared with a decline of 50-100 bps mentioned earlier. The leverage is likely to be driven by increased sales. The company expects the operating margin for fiscal 2022 to be flat to up slightly from that reported last year compared with the flat operating margin expected earlier. lululemon expects an effective tax rate of 28-28.5% for fiscal 2022.
GAAP EPS is projected to be $9.82-$9.97 for fiscal 2022. Excluding the gain from the sale of an administrative office building, adjusted EPS for the fiscal year is envisioned to be $9.75-$9.90 compared with $9.35-$9.50 expected earlier. The company expects capital expenditure of $610-$635 million for fiscal 2022, suggesting 8% of revenues. This is in line with the company’s power of three X2 initiative’s target of 7-9% of revenues. Earlier, the company predicted a capital expenditure of $600-$625 million for fiscal 2022.
Caleres has a Zacks Rank #2 at present. Shares of CAL have declined 13.7% in the past three months. The company has a trailing four-quarter earnings surprise of 34.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Caleres’ current-year sales and EPS suggests growth of 5.6% and 0.9%, respectively, from the year-ago reported figures.
Snap-On currently carries a Zacks Rank of 2. SNA has a trailing four-quarter earnings surprise of 8.9%, on average. Shares of SNA have declined 2.3% in the past three months.
The Zacks Consensus Estimate for Snap-On’s current financial year’s sales and EPS suggests growth of 4.7% and 8.2%, respectively, from the year-ago period's reported numbers.
On Holding currently carries a Zacks Rank #2. ONON has a trailing four-quarter earnings surprise of 537.8%, on average. Shares of ONON have declined 11.1% in the past three months.
The Zacks Consensus Estimate for On Holding's current financial-year sales and earnings suggests growth of 45.8% and 233.3%, respectively, from the year-ago period's reported figures.
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lululemon (LULU) Tops on Q2 Earnings & Revenues, Ups View
lululemon athletica inc. (LULU - Free Report) reported strong second-quarter fiscal 2022 results, with revenues and earnings surpassing the Zacks Consensus Estimate and improving year over year. The results were driven by the continued business momentum, which led to robust sales and an improved operating margin.
lululemon’s fiscal second-quarter adjusted earnings of $2.20 per share beat the Zacks Consensus Estimate of $1.86 and our estimate of $1.82. The figure also reflected an increase of 33.3% from adjusted earnings of $1.65 in the year-ago quarter.
On a GAAP basis, earnings per share of $2.26 for second-quarter fiscal 2022 improved from $1.59 reported in second-quarter fiscal 2021 and 96 cents in second-quarter 2019. The company’s earnings improved 32% on a three-year compounded annual growth rate (CAGR) basis.
Shares of lululemon rose 9.8% in the after-hours trading session on Sep 1, backed by the strong results and a raised view. The Zacks Rank #3 (Hold) company’s shares have lost 2.1% in the past three months compared with the industry’s decline of 8%.
Image Source: Zacks Investment Research
The Vancouver, Canada-based company’s quarterly revenues advanced 28.8% year over year to $1,868.3 million and surpassed the Zacks Consensus Estimate of $1,770 million and our estimate of 1,772.2 million. Revenue growth was mainly driven by the strong momentum in its business, driven by a favorable response to its products. The company’s net revenues grew 28% in North America and 35% internationally. Compared with the second quarter of fiscal 2019, net revenues improved 112%, witnessing a three-year CAGR of 28%.
The company’s total comparable sales rose 23% year over year and 25% on a constant-dollar basis. Comps were driven by robust traffic trends in both stores and e-commerce, with more than 30% traffic growth at stores and more than 40% growth in e-commerce. Transactions by existing guests increased in the high teens, while transactions by new guests were up more than 20%. On a three-year CAGR basis, traffic was up 8% in stores and more than 40% in e-commerce.
Direct-to-consumer net revenues climbed 30% (up 32% on a constant-dollar basis). Direct-to-consumer net revenues accounted for 42% of the company’s total net revenues compared with 41% in the second quarter of fiscal 2021. The company’s e-commerce business delivered an impressive performance, with revenues increasing 53% on a three-year CAGR basis.
In the company’s store channel, sales increased 30% year over year and 16% on a three-year CAGR basis. Comparable sales in stores increased 18%. Management highlighted that productivity was higher in second-quarter fiscal 2022 than the 2019 level. The company had 98% of stores open in the fiscal second quarter. It currently has 99% of its stores open.
lululemon athletica inc. Price, Consensus and EPS Surprise
lululemon athletica inc. price-consensus-eps-surprise-chart | lululemon athletica inc. Quote
Margins
The gross profit improved 25% year over year to $1,055.5 million. However, the gross margin contracted 160 basis points (bps) to 56.5%, thanks to a 150-bps decline in the product margin. The product margin in the fiscal second quarter was impacted by a 130-bps increase in air freight due to the ongoing supply-chain headwinds, a 30-bps impact of higher markdowns and a 40-bps deleverage from foreign currency. This was partly negated by a 30-bps leverage on fixed costs, driven by occupancy and depreciation. The gross margin expanded 150 bps from second-quarter fiscal 2019.
SG&A expenses of $662.3 million increased 22.4% from the year-ago quarter. SG&A expenses, as a percentage of net revenues, were 35.4%, down 190 bps from 37.3% reported in the prior-year quarter, owing to the leverage in store and digital channels, and slightly favorable currency rates. This was somewhat offset by higher investments in corporate SG&A and depreciation.
Income from operations jumped 37.9% to $401.2 million from $201.5 million reported in the prior-year quarter. The operating margin expanded 140 bps to 21.5% from the prior-year quarter’s 20.1% and 250 bps from second-quarter fiscal 2019.
Adjusted income from operations rose 31% year over year in the second quarter of fiscal 2022, while the adjusted operating margin expanded 30 bps. The adjusted operating margin increased 190 bps from second-quarter fiscal 2019.
Store Update
In the fiscal second quarter, the company opened 21 net new stores and completed six co-located optimizations. As of Jun 30, 2022, it operated 600 stores.
Management expects to open 25 net new company-operated stores in the third quarter of fiscal 2022. It anticipates opening approximately 75 net new company-operated stores in fiscal 2022 compared with 70 store openings mentioned earlier. The store openings in fiscal 2022 will likely include 45 stores in the international markets. The total store openings in fiscal 2022 will imply a square footage increase in the low 20% range.
Financials
lululemon exited the quarter with cash and cash equivalents of $498.8 million, and stockholders’ equity of $2,857.8 million. At the end of second-quarter fiscal 2022, the company had $394.8 million remaining under its committed revolving credit facility.
At the end of the fiscal second quarter, the company’s inventories grew 85% to $1,462.1 million. On a unit basis, inventory was up 64%, witnessing a three-year CAGR of 38%.
The company expects the inventory growth rate at the end of the fiscal third quarter to be slightly higher than the level witnessed at the end of the fiscal second quarter. At the end of the fiscal fourth quarter, the inventory growth rate is anticipated to moderate to 50-60%.
In second-quarter fiscal 2022, management repurchased 420,000 million shares at an average rate of $298 per share. As of Jun 30, 2022, the company had $830 million remaining under its recently authorized $1 billion share repurchase program.
Outlook
For the third quarter of fiscal 2022, management anticipates net revenues of $1.78-$1.805 billion, indicating 23-24% year-over-year growth and a 25% rise on a three-year CAGR basis. The company expects the fiscal third-quarter gross margin to be down 50-70 bps year over year.
Although the company assumes lower impacts of air freight on the gross margin in the fiscal third quarter, it expects the timing of supply-chain-related expenses and the normalized markdowns in the quarter compared with the prior-year quarter to hurt the results. lululemon anticipates a relatively flat SG&A expense rate for the fiscal third quarter. Adjusted earnings per share (EPS) are projected to be $1.90-$1.95 for the fiscal third quarter.
The company raised its guidance for fiscal 2022. lululemon anticipates net revenues of $7.865-$7.94 billion compared with the prior mentioned $7.61-$7.71 billion. The revised view represents a three-year CAGR of 26%. The sales view assumes e-commerce growth in the low- to mid-20s range relative to that reported in fiscal 2021, and compares with a high-teens to low-20s range expected earlier. The company’s revenue guidance suggests three-year CAGR growth of 26%, higher than the 3-year revenue CAGR of 19% leading up to fiscal 2020.
lululemon anticipates a gross margin decline of 100-130 bps for fiscal 2022 compared with a 100-150 bps decline mentioned earlier. The decline is expected to result from higher investments in the distribution center network and more normalized markdowns from the low levels witnessed in the prior year. The company estimates an effective tax rate of 28% for the fiscal third quarter.
For fiscal 2022, LULU expects the SG&A rate to leverage 100-130 bps year over year compared with a decline of 50-100 bps mentioned earlier. The leverage is likely to be driven by increased sales. The company expects the operating margin for fiscal 2022 to be flat to up slightly from that reported last year compared with the flat operating margin expected earlier. lululemon expects an effective tax rate of 28-28.5% for fiscal 2022.
GAAP EPS is projected to be $9.82-$9.97 for fiscal 2022. Excluding the gain from the sale of an administrative office building, adjusted EPS for the fiscal year is envisioned to be $9.75-$9.90 compared with $9.35-$9.50 expected earlier. The company expects capital expenditure of $610-$635 million for fiscal 2022, suggesting 8% of revenues. This is in line with the company’s power of three X2 initiative’s target of 7-9% of revenues. Earlier, the company predicted a capital expenditure of $600-$625 million for fiscal 2022.
Eye These Solid Picks
Some better-ranked stocks to consider are Caleres (CAL - Free Report) , Snap-On (SNA - Free Report) and On Holding (ONON - Free Report) .
Caleres has a Zacks Rank #2 at present. Shares of CAL have declined 13.7% in the past three months. The company has a trailing four-quarter earnings surprise of 34.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Caleres’ current-year sales and EPS suggests growth of 5.6% and 0.9%, respectively, from the year-ago reported figures.
Snap-On currently carries a Zacks Rank of 2. SNA has a trailing four-quarter earnings surprise of 8.9%, on average. Shares of SNA have declined 2.3% in the past three months.
The Zacks Consensus Estimate for Snap-On’s current financial year’s sales and EPS suggests growth of 4.7% and 8.2%, respectively, from the year-ago period's reported numbers.
On Holding currently carries a Zacks Rank #2. ONON has a trailing four-quarter earnings surprise of 537.8%, on average. Shares of ONON have declined 11.1% in the past three months.
The Zacks Consensus Estimate for On Holding's current financial-year sales and earnings suggests growth of 45.8% and 233.3%, respectively, from the year-ago period's reported figures.