lululemon athletica inc 10-Q for FY2024 Q3

lululemon athletica inc. (LULU)

10-Q 2023-12-07 For: 2023-10-29

Added on April 07, 2026

About this 10-Q

lululemon athletica inc filed this 10-Q on December 7, 2023, covering the quarter ended October 29, 2023 (FY2024 Q3).

Headline figures

Quarter ended October 29, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $2.2B; up 18.7% from $1.86B a year earlier
Net income: $248.71M; down 2.6% from net income of $255.47M a year earlier
Diluted EPS: $1.96; down 2.0% from $2.00 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 (Unaudited):	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	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 5.	Other Information	53
Item 6.	Exhibits	54

Signatures		55


	October 29, 2023		January 29, 2023
ASSETS
Current assets
Cash and cash equivalents	$	1,091,138	$	1,154,867
Accounts receivable, net	107,004		132,906
Inventories	1,663,617		1,447,367
Prepaid and receivable income taxes	300,258		185,641
Prepaid expenses and other current assets	202,882		238,672
	3,364,899		3,159,453
Property and equipment, net	1,413,918		1,269,614
Right-of-use lease assets	1,048,607		969,419
Goodwill	23,912		24,144
Intangible assets, net	—		21,961
Deferred income tax assets	5,896		6,402
Other non-current assets	165,032		156,045
	$	6,022,264	$	5,607,038
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	309,324	$	172,732
Accrued liabilities and other	392,949		399,223
Accrued compensation and related expenses	250,479		248,167
Current lease liabilities	217,138		207,972
Current income taxes payable	27,231		174,221
Unredeemed gift card liability	213,256		251,478
Other current liabilities	37,737		38,405
	1,448,114		1,492,198
Non-current lease liabilities	950,954		862,362
Non-current income taxes payable	15,864		28,555
Deferred income tax liabilities	53,833		55,084
Other non-current liabilities	27,650		20,040
	2,496,415		2,458,239
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; 5,116 and 5,116 issued and outstanding	—		—
Special voting stock, $0.000005 par value: 60,000 shares authorized; 5,116 and 5,116 issued and outstanding	—		—
Common stock, $0.005 par value: 400,000 shares authorized; 121,122 and 122,205 issued and outstanding	606		611
Additional paid-in capital	536,390		474,645
Retained earnings	3,304,683		2,926,127
Accumulated other comprehensive loss	(315,830)		(252,584)
	3,525,849		3,148,799
	$	6,022,264	$	5,607,038


	Quarter Ended				Three Quarters Ended
	October 29, 2023		October 30, 2022		October 29, 2023		October 30, 2022
Net revenue	$	2,204,218	$	1,856,889	$	6,414,175	$	5,338,680
Cost 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
Selling, general and administrative expenses	842,795		684,236		2,407,683		1,954,340
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
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

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	$	(96,478)	$	(105,016)	$	(84,442)	$	(122,149)
Net investment hedge gains (losses)	20,490		25,492		21,196		26,259
Other comprehensive income (loss), net of tax	$	(75,988)	$	(79,524)	$	(63,246)	$	(95,890)
Comprehensive income	$	172,726	$	175,946	$	817,476	$	639,099

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 number of shares outstanding	126,460		127,511		126,892		127,736
Diluted weighted-average number of shares outstanding	126,770		127,820		127,218		128,089


☑			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 October 29, 2023
	Exchangeable Stock	Special Voting Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Shares	Par Value		Shares	Par Value
Balance as of July 30, 2023	5,116	5,116	$	—	121,613	$	608	$	505,127	$	3,267,589	$	(239,842)	$	3,533,482
Net income										248,714				248,714
Other comprehensive income (loss), net of tax												(75,988)		(75,988)

Stock-based compensation expense								24,573						24,573
Common stock issued upon settlement of stock-based compensation					67	2		8,834						8,836
Shares withheld related to net share settlement of stock-based compensation					(5)	—		(1,142)						(1,142)
Repurchase of common stock, including excise tax					(553)	(4)		(1,002)		(211,620)				(212,626)
Balance as of October 29, 2023	5,116	5,116	$	—	121,122	$	606	$	536,390	$	3,304,683	$	(315,830)	$	3,525,849


	Quarter Ended October 30, 2022
	Exchangeable Stock	Special Voting Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Shares	Par Value		Shares	Par Value
Balance as of July 31, 2022	5,203	5,203	$	—	122,334	$	612	$	433,092	$	2,636,377	$	(212,283)	$	2,857,798
Net income										255,470				255,470
Other comprehensive income (loss), net of tax												(79,524)		(79,524)

Stock-based compensation expense								20,312						20,312
Common stock issued upon settlement of stock-based compensation					45	—		4,057						4,057
Shares withheld related to net share settlement of stock-based compensation					(6)	—		(1,917)						(1,917)
Repurchase of common stock					(55)	—		(100)		(16,892)				(16,992)
Balance as of October 30, 2022	5,203	5,203	$	—	122,318	$	612	$	455,444	$	2,874,955	$	(291,807)	$	3,039,204


	Three Quarters Ended October 29, 2023
	Exchangeable Stock	Special Voting Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Shares	Par Value		Shares	Par Value
Balance as of January 29, 2023	5,116	5,116	$	—	122,205	$	611	$	474,645	$	2,926,127	$	(252,584)	$	3,148,799
Net income										880,722				880,722
Other comprehensive income (loss), net of tax												(63,246)		(63,246)

Stock-based compensation expense								70,157						70,157
Common stock issued upon settlement of stock-based compensation					374	2		24,935						24,937
Shares withheld related to net share settlement of stock-based compensation					(95)	—		(30,877)						(30,877)
Repurchase of common stock, including excise tax					(1,362)	(7)		(2,470)		(502,166)				(504,643)
Balance as of October 29, 2023	5,116	5,116	$	—	121,122	$	606	$	536,390	$	3,304,683	$	(315,830)	$	3,525,849


	Three Quarters Ended October 30, 2022
	Exchangeable Stock	Special Voting Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	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										734,989				734,989
Other comprehensive income (loss), net of tax												(95,890)		(95,890)

Stock-based compensation expense								59,487						59,487
Common stock issued upon settlement of stock-based compensation					308	2		10,241						10,243
Shares withheld related to net share settlement of stock-based compensation					(104)	—		(34,695)						(34,695)
Repurchase of common stock					(1,183)	(6)		(2,096)		(372,874)				(374,976)
Balance as of October 30, 2022	5,203	5,203	$	—	122,318	$	612	$	455,444	$	2,874,955	$	(291,807)	$	3,039,204


Note 1	Nature of Operations and Basis of Presentation	9
Note 2	Recent Accounting Pronouncements	9
Note 3	Impairment of Assets and Restructuring Costs	10
Note 4	Gain on Disposal of Assets	11
Note 5	Revolving Credit Facilities and Supply Chain Financing Program	11
Note 6	Stock-Based Compensation and Benefit Plans	12
Note 7	Fair Value Measurement	13
Note 8	Derivative Financial Instruments	14
Note 9	Earnings Per Share	16
Note 10	Supplementary Financial Information	17
Note 11	Segmented Information	19
Note 12	Net Revenue by Geography and Category	20
Note 13	Legal Proceedings and Other Contingencies	20


	2023
	(In thousands)
Costs recorded in cost of goods sold:
lululemon Studio obsolescence provision	$	23,709

Costs recorded in operating expenses:
Impairment of assets:
Impairment of intangible assets	$	16,951
Impairment of cloud computing arrangement implementation costs	16,074
Impairment of property and equipment	11,161
	$	44,186
Restructuring costs	30,315
Impairment of assets and restructuring costs	$	74,501

Total pre-tax charges	$	98,210

Income tax effects of charges	$	(26,085)
Total after-tax charges	$	72,125


	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 29, 2023	866	$	230.78	166	$	295.93	5	$	308.66	221	$	323.89
Granted	212	358.97		121	296.14		4	368.36		127	359.69
Exercised/released	166	150.49		104	201.56		5	308.66		99	291.10
Forfeited/expired	28	332.37		8	350.89		1	368.36		19	348.82
Balance as of October 29, 2023	884	$	273.39	175	$	349.78	3	$	368.36	230	$	355.73
Exercisable as of October 29, 2023	423	$	203.17


	First Three Quarters
	2023
Expected term	3.75 years
Expected volatility	42.35	%
Risk-free interest rate	3.49	%
Dividend yield	—	%


	October 29, 2023						January 29, 2023
	Gross Notional		Assets		Liabilities		Gross Notional		Assets		Liabilities
	(In thousands)
Derivatives designated as net investment hedges:
Forward currency contracts	$	617,500	$	10,961	$	—	$	1,070,000	$	—	$	17,211
Derivatives not designated in a hedging relationship:
Forward currency contracts	991,145		4,893		11,497		1,605,284		16,707		8,414
Net derivatives recognized on consolidated balance sheets:
Forward currency contracts			$	15,854	$	11,497			$	16,707	$	25,625


	Third Quarter				First Three Quarters
	2023		2022		2023		2022
	(In thousands)
Gains (losses) recognized in selling, general and administrative expenses:
Foreign currency exchange gains (losses)	$	18,154	$	4,845	$	(11,944)	$	(11,395)
Derivatives not designated in a hedging relationship	(17,962)		(11,033)		15,060		(3,325)
Net foreign currency exchange and derivative gains (losses)	$	192	$	(6,188)	$	3,116	$	(14,720)


	October 29, 2023		January 29, 2023
	(In thousands)
Inventories:
Inventories, at cost	$	1,852,525	$	1,571,981
Provision to reduce inventories to net realizable value	(188,908)		(124,614)
	$	1,663,617	$	1,447,367
Prepaid expenses and other current assets:
Prepaid expenses	$	136,501	$	142,003
Forward currency contract assets	15,854		16,707
Other current assets	50,527		79,962
	$	202,882	$	238,672
Property and equipment, net:
Land	$	77,173	$	80,692
Buildings	28,479		28,850
Leasehold improvements	921,629		818,071
Furniture and fixtures	145,813		144,572
Computer hardware	161,029		166,768
Computer software	947,878		742,295
Equipment and vehicles	31,766		30,766
Work in progress	224,258		244,898
Property and equipment, gross	2,538,025		2,256,912
Accumulated depreciation	(1,124,107)		(987,298)
	$	1,413,918	$	1,269,614
Other non-current assets:
Cloud computing arrangement implementation costs	$	121,276	$	114,700
Security deposits	29,839		28,447
Other	13,917		12,898
	$	165,032	$	156,045


	October 29, 2023		January 29, 2023
	(In thousands)
Accrued liabilities and other:
Accrued operating expenses	$	172,962	$	169,429
Accrued freight	47,235		57,692
Sales return allowances	52,692		55,528
Forward currency contract liabilities	11,497		25,625
Accrued duty	29,177		21,046
Sales tax collected	23,349		20,183
Accrued capital expenditures	21,386		19,365
Accrued rent	13,735		12,223
Accrued inventory liabilities	6,330		4,345
Other	14,586		13,787
	$	392,949	$	399,223


	October 29, 2023		Level 1		Level 2		Level 3		Balance Sheet Classification
	(In thousands)
Money market funds	$	316,770	$	316,770	$	—	$	—	Cash and cash equivalents

Term deposits	47		—		47		—		Cash and cash equivalents
Forward currency contract assets	15,854		—		15,854		—		Prepaid expenses and other current assets
Forward currency contract liabilities	11,497		—		11,497		—		Other current liabilities


	Third Quarter 2023				First Three Quarters 2023
	Net Revenue				Net Revenue
	(In thousands)		(Percentage)		(In thousands)		(Percentage)
Change	$	347,329	19	%	$	1,075,495	20	%
Adjustments due to foreign currency exchange rate changes	11,098		—		82,201		2	%
Change in constant dollars	$	358,427	19	%	$	1,157,696	22	%


	Third Quarter 2023						First Three Quarters 2023
	Total Comparable Sales(1),(2)		Comparable Store Sales(2)		Direct to Consumer Net Revenue		Total Comparable Sales(1),(2)		Comparable Store Sales(2)		Direct to Consumer Net Revenue
Change	13	%	9	%	18	%	13	%	10	%	16	%
Adjustments due to foreign currency exchange rate changes	1		—		1		1		1		2
Change in constant dollars	14	%	9	%	19	%	14	%	11	%	18	%


	Third Quarter 2023
	Gross Profit		Gross Margin		Income from Operations		Operating Margin		Income Tax Expense		Effective Tax Rate		Net Income		Diluted Earnings Per Share
	(In thousands, except per share amounts)
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 2022
	Income from Operations		Operating Margin		Income Tax Expense		Effective Tax Rate		Net Income		Diluted Earnings Per Share
	(In thousands, except per share amounts)
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


Number of company-operated stores by country (market)	October 29, 2023	January 29, 2023
United States	361	350
People's Republic of China(1)	133	117
Canada	70	69
Australia	32	32
United Kingdom	20	20
South Korea	18	16
Germany	9	10
New Zealand	8	8
Singapore	7	8
Japan	7	7
France	5	4
Ireland	4	4
Spain	3	3
Malaysia	2	2
Sweden	2	2
Netherlands	2	1
Norway	1	1
Switzerland	1	1
Thailand	1	—
Total company-operated stores	686	655


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)
July 31, 2023 - August 27, 2023	187,708	$	380.24	187,708	$	382,579,838
August 28, 2023 - October 1, 2023	203,197	383.50		203,197	304,653,432
October 2, 2023 - October 29, 2023	162,446	378.34		162,446	243,193,954
Total	553,351			553,351


						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)