lululemon athletica inc 10-Q for FY2023 Q2

lululemon athletica inc. (LULU)

10-Q 2022-09-01 For: 2022-07-31

Added on April 07, 2026

About this 10-Q

lululemon athletica inc filed this 10-Q on September 1, 2022, covering the quarter ended July 31, 2022 (FY2023 Q2).

Headline figures

Quarter ended July 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.87B; up 28.8% from $1.45B a year earlier
Net income: $289.52M; up 39.1% from net income of $208.07M a year earlier
Diluted EPS: $2.26; up 42.1% from $1.59 a year earlier

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Delaware			20-3842867
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)


Large Accelerated Filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations and Comprehensive Income	4
	Consolidated Statements of Stockholders' Equity	5
	Consolidated Statements of Cash Flows	7
	Index for Notes to the Unaudited Interim Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	36

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 6.	Exhibits	52

Signatures		53


	July 31, 2022		January 30, 2022
ASSETS
Current assets
Cash and cash equivalents	$	498,831	$	1,259,871
Accounts receivable	81,784		77,001
Inventories	1,462,076		966,481
Prepaid and receivable income taxes	166,438		118,928
Prepaid expenses and other current assets	177,965		192,572
	2,387,094		2,614,853
Property and equipment, net	1,059,859		927,710
Right-of-use lease assets	867,901		803,543
Goodwill	386,868		386,880
Intangible assets, net	66,908		71,299
Deferred income tax assets	6,025		6,091
Other non-current assets	146,056		132,102
	$	4,920,711	$	4,942,478
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	259,927	$	289,728
Accrued liabilities and other	345,105		330,800
Accrued compensation and related expenses	153,381		204,921
Current lease liabilities	196,259		188,996
Current income taxes payable	50,815		133,852
Unredeemed gift card liability	172,666		208,195
Other current liabilities	29,057		48,842
	1,207,210		1,405,334
Non-current lease liabilities	757,865		692,056
Non-current income taxes payable	28,555		38,074
Deferred income tax liabilities	53,271		53,352
Other non-current liabilities	16,012		13,616
	2,062,913		2,202,432
Commitments and contingencies
Stockholders' equity
Undesignated preferred stock, $0.01 par value: 5,000 shares authorized; none issued and outstanding	—		—
Exchangeable stock, no par value: 60,000 shares authorized; 5,203 and 5,203 issued and outstanding	—		—
Special voting stock, $0.000005 par value: 60,000 shares authorized; 5,203 and 5,203 issued and outstanding	—		—
Common stock, $0.005 par value: 400,000 shares authorized; 122,334 and 123,297 issued and outstanding	612		616
Additional paid-in capital	433,092		422,507
Retained earnings	2,636,377		2,512,840
Accumulated other comprehensive loss	(212,283)		(195,917)
	2,857,798		2,740,046
	$	4,920,711	$	4,942,478


	Quarter Ended				Two Quarters Ended
	July 31, 2022		August 1, 2021		July 31, 2022		August 1, 2021
Net revenue	$	1,868,328	$	1,450,618	$	3,481,791	$	2,677,083
Cost of goods sold	812,852		607,932		1,555,922		1,134,083
Gross profit	1,055,476		842,686		1,925,869		1,543,000
Selling, general and administrative expenses	662,253		541,317		1,270,104		1,037,951
Amortization of intangible assets	2,195		2,195		4,390		4,390
Acquisition-related expenses	—		8,143		—		15,807
Gain on disposal of assets	(10,180)		—		(10,180)		—
Income from operations	401,208		291,031		661,555		484,852
Other income (expense), net	145		96		123		323
Income before income tax expense	401,353		291,127		661,678		485,175
Income tax expense	111,832		83,053		182,159		132,145
Net income	$	289,521	$	208,074	$	479,519	$	353,030

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	$	8,715	$	(36,014)	(17,133)		31,227
Net investment hedge gains (losses)	(4,289)		12,494		767		(11,111)
Other comprehensive income (loss), net of tax	$	4,426	$	(23,520)	$	(16,366)	$	20,116
Comprehensive income	$	293,947	$	184,554	$	463,153	$	373,146

Basic earnings per share	$	2.27	$	1.60	$	3.75	$	2.71
Diluted earnings per share	$	2.26	$	1.59	$	3.74	$	2.70
Basic weighted-average number of shares outstanding	127,619		130,007		127,848		130,187
Diluted weighted-average number of shares outstanding	127,906		130,490		128,224		130,742


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Quarter Ended July 31, 2022
	Exchangeable Stock	Special Voting Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Shares	Shares	Par Value		Shares	Par Value
Balance as of May 1, 2022	5,203	5,203	$	—	122,732	$	614	$	412,713	$	2,471,432	$	(216,709)	$	2,668,050
Net income										289,521				289,521
Other comprehensive income (loss), net of tax												4,426		4,426

Stock-based compensation expense								20,817						20,817
Common stock issued upon settlement of stock-based compensation					24	—		1,043						1,043
Shares withheld related to net share settlement of stock-based compensation					(2)	—		(719)						(719)
Repurchase of common stock					(420)	(2)		(762)		(124,576)				(125,340)
Balance as of July 31, 2022	5,203	5,203	$	—	122,334	$	612	$	433,092	$	2,636,377	$	(212,283)	$	2,857,798


	Quarter Ended August 1, 2021
	Exchangeable Stock	Special Voting Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Shares	Shares	Par Value		Shares	Par Value
Balance as of May 2, 2021	5,203	5,203	$	—	125,069	$	625	$	364,743	$	2,408,006	$	(133,519)	$	2,639,855
Net income										208,074				208,074
Other comprehensive income (loss), net of tax												(23,520)		(23,520)

Stock-based compensation expense								15,289						15,289
Common stock issued upon settlement of stock-based compensation					88	—		5,218						5,218
Shares withheld related to net share settlement of stock-based compensation					(8)	—		(2,668)						(2,668)
Repurchase of common stock					(505)	(2)		(845)		(170,235)				(171,082)
Balance as of August 1, 2021	5,203	5,203	$	—	124,644	$	623	$	381,737	$	2,445,845	$	(157,039)	$	2,671,166


	Two Quarters Ended July 31, 2022
	Exchangeable Stock	Special Voting Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Shares	Shares	Par Value		Shares	Par Value
Balance as of January 30, 2022	5,203	5,203	$	—	123,297	$	616	$	422,507	$	2,512,840	$	(195,917)	$	2,740,046
Net income										479,519				479,519
Other comprehensive income (loss), net of tax												(16,366)		(16,366)

Stock-based compensation expense								39,175						39,175
Common stock issued upon settlement of stock-based compensation					263	2		6,184						6,186
Shares withheld related to net share settlement of stock-based compensation					(98)	—		(32,778)						(32,778)
Repurchase of common stock					(1,128)	(6)		(1,996)		(355,982)				(357,984)
Balance as of July 31, 2022	5,203	5,203	$	—	122,334	$	612	$	433,092	$	2,636,377	$	(212,283)	$	2,857,798


	Two Quarters Ended August 1, 2021
	Exchangeable Stock	Special Voting Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Shares	Shares	Par Value		Shares	Par Value
Balance as of January 31, 2021	5,203	5,203	$	—	125,150	$	626	$	388,667	$	2,346,428	$	(177,155)	$	2,558,566
Net income										353,030				353,030
Other comprehensive income (loss), net of tax												20,116		20,116

Stock-based compensation expense								30,221						30,221
Common stock issued upon settlement of stock-based compensation					412	2		9,711						9,713
Shares withheld related to net share settlement of stock-based compensation					(143)	(1)		(45,566)						(45,567)
Repurchase of common stock					(775)	(4)		(1,296)		(253,613)				(254,913)
Balance as of August 1, 2021	5,203	5,203	$	—	124,644	$	623	$	381,737	$	2,445,845	$	(157,039)	$	2,671,166


Note 1	Nature of Operations and Basis of Presentation	9
Note 2	Recent Accounting Pronouncements	9
Note 3	Acquisition-Related Expenses	10
Note 4	Gain on Disposal of Assets	10
Note 5	Revolving Credit Facilities	10
Note 6	Stock-Based Compensation and Benefit Plans	11
Note 7	Fair Value Measurement	12
Note 8	Derivative Financial Instruments	13
Note 9	Earnings Per Share	15
Note 10	Supplementary Financial Information	16
Note 11	Segmented Information	18
Note 12	Net Revenue by Geography and Category	19
Note 13	Legal Proceedings and Other Contingencies	19


	Second Quarter				First Two Quarters
	2022		2021		2022		2021
	(in thousands)
Acquisition-related expenses:
Transaction and integration costs	$	—	$	1,035	$	—	$	1,531
Acquisition-related compensation	—		7,108		—		14,276
	$	—	$	8,143	$	—	$	15,807

Income tax effects of acquisition-related expenses	$	—	$	(434)	$	—	$	(806)


	Stock Options			Performance-Based Restricted Stock Units			Restricted Shares			Restricted Stock Units
	Number	Weighted-Average Exercise Price		Number	Weighted-Average Grant Date Fair Value		Number	Weighted-Average Grant Date Fair Value		Number	Weighted-Average Grant Date Fair Value
	(In thousands, except per share amounts)
Balance as of January 30, 2022	789	$	186.10	167	$	225.27	4	$	326.70	238	$	265.90
Granted	184	372.45		116	274.15		4	307.77		102	370.72
Exercised/released	50	122.91		114	170.04		4	326.70		95	217.92
Forfeited/expired	14	268.26		3	302.77		—	—		9	310.80
Balance as of July 31, 2022	909	$	226.19	166	$	295.76	4	$	307.77	236	$	328.60
Exercisable as of July 31, 2022	415	$	153.80


	First Two Quarters
	2022
Expected term	3.75 years
Expected volatility	40.00	%
Risk-free interest rate	2.51	%
Dividend yield	—	%


	July 31, 2022						January 30, 2022
	Gross Notional		Assets		Liabilities		Gross Notional		Assets		Liabilities
	(In thousands)
Derivatives designated as net investment hedges:
Forward currency contracts	$	1,190,500	$	4,039	$	—	$	1,502,000	$	18,468	$	—
Derivatives not designated in a hedging relationship:
Forward currency contracts	1,470,750		2,358		5,015		1,597,878		609		18,985
Net derivatives recognized on consolidated balance sheets:
Forward currency contracts			$	6,397	$	5,015			$	19,077	$	18,985


	July 31, 2022		January 30, 2022
	(In thousands)
Inventories:
Inventories, at cost	$	1,524,026	$	1,004,526
Provision to reduce inventories to net realizable value	(61,950)		(38,045)
	$	1,462,076	$	966,481
Prepaid expenses and other current assets:
Prepaid inventories	$	126	$	42,691
Other prepaid expenses	121,388		98,254
Forward currency contract assets	6,397		19,077
Other current assets	50,054		32,550
	$	177,965	$	192,572
Property and equipment, net:
Land	$	73,444	$	74,297
Buildings	27,849		30,880
Leasehold improvements	731,521		676,762
Furniture and fixtures	133,183		125,213
Computer hardware	143,115		130,393
Computer software	664,310		532,819
Equipment and vehicles	27,972		23,060
Work in progress	182,107		163,420
Property and equipment, gross	1,983,501		1,756,844
Accumulated depreciation	(923,642)		(829,134)
	$	1,059,859	$	927,710
Other non-current assets:
Cloud computing arrangement implementation costs	$	101,341	$	89,334
Security deposits	26,317		24,083
Other	18,398		18,685
	$	146,056	$	132,102


	July 31, 2022		January 30, 2022
	(In thousands)
Accrued liabilities and other:
Accrued operating expenses	$	128,755	$	116,822
Accrued freight	53,901		71,390
Sales return allowances	41,934		41,690
Accrued duty	26,580		27,182
Forward currency contract liabilities	5,015		18,985
Sales tax collected	13,726		13,540
Accrued rent	12,669		11,254
Accrued capital expenditures	20,733		9,616
Accrued inventory liabilities	25,309		4,005
Other	16,483		16,316
	$	345,105	$	330,800


	Second Quarter				First Two Quarters
	2022		2021		2022		2021
	(In thousands)
Net revenue:
Company-operated stores	$	903,077	$	695,120	$	1,634,681	$	1,231,704
Direct to consumer	775,425		597,426		1,496,678		1,142,515
Other	189,826		158,072		350,432		302,864
	$	1,868,328	$	1,450,618	$	3,481,791	$	2,677,083
Segmented income from operations:
Company-operated stores	$	256,807	$	184,996	$	417,513	$	284,144
Direct to consumer	326,423		260,248		611,530		497,181
Other	29,626		22,240		49,153		36,746
	612,856		467,484		1,078,196		818,071
General corporate expense	219,633		166,115		422,431		313,022
Amortization of intangible assets	2,195		2,195		4,390		4,390
Acquisition-related expenses	—		8,143		—		15,807
Gain on disposal of assets	(10,180)		—		(10,180)		—
Income from operations	401,208		291,031		661,555		484,852
Other income (expense), net	145		96		123		323
Income before income tax expense	$	401,353	$	291,127	$	661,678	$	485,175

Capital expenditures:
Company-operated stores	$	60,905	$	28,656	$	85,851	$	47,221
Direct to consumer	7,003		16,902		27,342		43,483
Corporate and other	76,810		34,711		142,877		53,790
	$	144,718	$	80,269	$	256,070	$	144,494
Depreciation and amortization:
Company-operated stores	$	32,015	$	28,304	$	63,325	$	55,104
Direct to consumer	8,807		6,836		17,476		12,584
Corporate and other	27,149		18,498		51,640		36,435
	$	67,971	$	53,638	$	132,441	$	104,123


	July 31, 2022		Level 1		Level 2		Level 3		Balance Sheet Classification
	(In thousands)
Money market funds	$	40,357	$	40,357	$	—	$	—	Cash and cash equivalents

Term deposits	34,894		—		34,894		—		Cash and cash equivalents
Forward currency contract assets	6,397		—		6,397		—		Prepaid expenses and other current assets
Forward currency contract liabilities	5,015		—		5,015		—		Other current liabilities


	Second Quarter 2022				First Two Quarters 2022
	Net Revenue					Net Revenue
	(In thousands)		(Percentages)			(In thousands)		(Percentages)
Change	$	417,710	29	%		$	804,708	30	%
Adjustments due to foreign currency exchange rate changes	35,293		2			42,391		2	%
Change in constant dollars	$	453,003	31	%		$	847,099	32	%


	Second Quarter 2022						First Two Quarters 2022
	Total Comparable Sales1,2		Comparable Store Sales2		Direct to Consumer Net Revenue		Total Comparable Sales1,2		Comparable Store Sales2		Direct to Consumer Net Revenue
Change	23	%	16	%	30	%	25	%	19	%	31	%
Adjustments due to foreign currency exchange rate changes	2		2		2		2		2		1
Change in constant dollars	25	%	18	%	32	%	27	%	21	%	32	%


Number of company-operated stores by country	July 31, 2022	January 30, 2022
United States	331	324
People's Republic of China(1)	96	86
Canada	65	63
Australia	31	31
United Kingdom	19	17
South Korea	14	12
Germany	9	9
New Zealand	8	7
Singapore	7	6
Japan	6	6
Ireland	4	3
France	3	3
Malaysia	2	2
Sweden	2	2
Netherlands	1	1
Norway	1	1
Switzerland	1	1
Total company-operated stores	600	574


Period(1)	Total Number of Shares Purchased(2)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2)
May 2, 2022 - May 29, 2022	291,967	$	300.98	291,967	$	866,935,463
May 30, 2022 - July 3, 2022	119,672	292.10		119,672	831,979,626
July 4, 2022 - July 31, 2022	8,401	297.54		8,401	829,480,008
Total	420,040			420,040


						lululemon athletica inc.

By:						/s/ MEGHAN FRANK
						Meghan Frank
						Chief Financial Officer
						(principal financial and accounting officer)


			By:						/s/ CALVIN MCDONALD
									Calvin McDonald
									Chief Executive Officer and Director
									(principal executive officer)